CENVAT Credit Eligible on Fly Ash Transportation Services — CESTAT Kolkata Rules in Favour of Shyam Metallics & Energy Ltd

Background and Context

The Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has delivered a significant ruling in Shyam Metallics & Energy Ltd Vs Commissioner of CGST & CX (CESTAT Kolkata), vide Excise Appeal No. 79412 of 2018, pronounced through Final Order No. 76067/2026 on 11.08.2026. The Tribunal set aside Order-in-Appeal No. 96/CE/RKL-GST/2018 dated 26.09.2018 issued by the Commissioner (Appeals) of CGST & Central Excise, Bhubaneshwar, and ruled in favour of the assessee on the admissibility of CENVAT credit on transportation services availed for movement of fly ash.

This decision adds to a growing line of precedents affirming that services directly connected with the handling of by-products generated during electricity production — where that electricity feeds directly into the manufacture of dutiable final products — are eligible input services under the CENVAT Credit Rules, 2004.

Profile of the Assessee and Manufacturing Operations

Shyam Metallics & Energy Ltd is engaged in the manufacture of sponge iron, ingots, billets, and TMT bars, all of which fall under Chapter 72 of the Central Excise Tariff Act, 1985. Appropriate central excise duty was discharged on all such final products.

To support its manufacturing operations, the assessee operates a captive thermal power plant within its factory premises. The electricity generated by this captive plant is consumed entirely in the production of the dutiable final products listed above.

A natural consequence of thermal electricity generation is the production of fly ash. Given the environmental hazards associated with fly ash, its disposal is not optional — the assessee is mandated to handle it responsibly under the provisions of the Environment (Protection) Act, 1986. Accordingly, the assessee engaged transportation service providers to move fly ash from the captive thermal plant to an ash pond situated within the factory premises itself.

Service tax paid on these transportation services was availed as CENVAT credit by the assessee. Additionally, fly ash cleared from the factory was subjected to appropriate Central Excise duty, and these clearances were duly recorded in the assessee's ER-1 returns.

Departmental Allegation and Show Cause Notices

The Department issued Show Cause Notices for the period 2015-16, alleging that the CENVAT credit availed on transportation services for fly ash movement was irregular and inadmissible. The core objection raised by the Department was that the transportation service had no direct or indirect nexus with the manufacture and clearance of the final products up to the place of removal.

In essence, the Department's position was that since fly ash is a by-product and not a final product in the traditional sense, services connected with its movement could not qualify as input services within the meaning of the CENVAT Credit Rules, 2004.

Assessee's Defence

The assessee filed comprehensive replies to the Show Cause Notices, advancing the following arguments: