CESTAT New Delhi Allows CENVAT Credit On Ore Crushing Services Used In Manufacturing Process

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi on 5 June 2026 held that services used for crushing mined iron ore and removing unwanted material before the ore reaches the factory qualify as “input services” for CENVAT credit, as they directly connect with the manufacturing process.

President Justice Dilip Gupta and Technical Member P. V. Subba Rao allowed the appeal filed by Godawari Power & Ispat Ltd. and set aside the demand, interest, and penalty imposed by the Department. It observed:

“...the term 'manufacture' in both the Act and the CCR includes any process incidental or ancillary to manufacture. Therefore, the scope of the 'input service' is not only services used in manufacture but also in processes incidental or ancillary to it…”

The dispute arose after the department denied CENVAT credit on services related to crushing, handling, and processing of mined iron ore. It argued that only the portion of ore that ultimately reached the factory and entered manufacture qualified for credit, while services used to remove debris and discarded material prior to that stage did not qualify.

Godawari Power & Ispat Ltd. argued before the Tribunal that crushing and processing of iron ore form essential preparatory steps without which manufacture of the final product cannot take place. It further contended that the CENVAT Credit Rules define “input service” broadly and include services used directly or indirectly, as well as services used in relation to manufacture.

The Tribunal accepted the company's contention and held that the expression “input service” carries a wide scope and includes services used directly or indirectly in manufacturing, as well as those used in processes incidental or ancillary to manufacture.

The Bench observed that manufacturing includes preparatory and supportive activities that enable production, not only the final stage of conversion. It noted that removal of unwanted material and crushing of mined ore form indispensable steps in the manufacturing chain, and manufacturers cannot produce the final product without undertaking these processes.

Rejecting the department's reasoning, the Tribunal held that the correct test requires examining whether the service is used directly or indirectly, and in or in relation to manufacture. Since crushing and handling of mined ore form an integral part of the manufacturing process, the related services qualify as input services eligible for CENVAT credit.

Accordingly, the CESTAT set aside the impugned order and held that the demand, along with consequential interest and penalty, could not be sustained.

For Appellant: Shri Krishna Mohan K. Menon and Ms. Prerna Jain Kala, Advocates

For Respondent: Shri S. K. Ray, Authorised Representative