2019 (6) TMI 717 - HC - GST

Principles of natural justice - decision based on new grounds , which were never raised before Advance Ruling Authority by the Revenue - vitiation of the decision making process - mutual exclusion of job work and manufacture - HELD THAT - The Appellate Authority has actually faulted the petitioner for its alleged failure to submit certain agreements and documentary evidences, having a direct bearing upon the new grounds , upon which the Appellate Authority has finally based its decision. The absence of any indication by the Appellate Authority that it proposed to take into consideration the new grounds or the failure on the part of the Appellate Authority to afford the petitioner an opportunity to produce documents or documentary evidences having direct bearing on the new grounds , in our opinion, amounts to failure on the part of the Appellate Authority to adhere to the principles of natural justice. Such failure, vitiates the decision making process and affords a good ground for interference in the exercise of powers of judicial review. The prejudice to the petitioner is quite evident in the facts and circumstances of the present case. The petitioner has been faulted for not providing documentary evidences during the appeal proceedings. There is again, no dispute, that the petitioner was never called upon to produce such documentary evidences in the course of appeal proceedings. In effect, this means that an order adverse to the interests of the petitioner has been made by the Appellate Authority, even after agreeing the petitioner that the primary reasoning of the Advance Ruling Authority was not proper, without affording the petitioner opportunity to meet with or to clarify or to produce materials or documentary evidences which might have had a bearing on the new grounds ultimately relied upon by the Appellate Authority. This, according to us, involves failure of natural justice, thereby vitiating the decision making process leading to the making of the impugned order dated 2nd July 2018. We are satisfied that the Appellate Authority should have at least indicated to the petitioner that it proposed to take into consideration the new grounds and further, afford an opportunity to the petitioner to place on record agreements or other documentary evidences referred to in paragraphs 52 and 56 of the impugned order dated 2nd July 2018, in order to meet these new grounds . The failure to do so has not only resulted in violation of principles of natural justice, but also occasioned serious prejudice to the petitioner. We set aside the impugned order dated 2 July 2018 made by the Appellate Authority and remand the petitioner s appeal to the Appellate Authority for reconsideration on its own merits and in accordance with law. Appeal disposed off.

Issues Involved:
1. Whether the proposed arrangement qualifies as "job work" under Section 2(68) of the CGST Act.
2. Applicability of GST on the supply of coal or other inputs by JSL to JEL.
3. Applicability of GST on the supply of power by JEL to JSL.
4. Applicability of GST on job work charges payable to JEL by JSL.
5. Whether the Appellate Authority exceeded its jurisdiction by introducing new grounds not raised before the Advance Ruling Authority.
6. Alleged violation of principles of natural justice by the Appellate Authority.

Detailed Analysis:

1. Whether the proposed arrangement qualifies as "job work" under Section 2(68) of the CGST Act:
The petitioner, JSW Energy Limited (JEL), sought an advance ruling to determine if their arrangement with JSW Steel Limited (JSL) for converting coal into electricity and electricity into steel qualifies as "job work." The Advance Ruling Authority initially ruled that the arrangement did not qualify as "job work" because it amounted to "manufacture" under Section 2(72) of the CGST Act. The Appellate Authority, however, disagreed with this reasoning, stating that processing undertaken by a person on goods belonging to another can qualify as job work even if it amounts to manufacture, provided all requirements under the CGST/MGST Act are met.

2. Applicability of GST on the supply of coal or other inputs by JSL to JEL:
The Advance Ruling Authority did not entertain this question, stating it pertained to JSL and not JEL, the applicant. This issue was not further addressed in the judgment.

3. Applicability of GST on the supply of power by JEL to JSL:
The Advance Ruling Authority ruled affirmatively that GST is applicable on the supply of power by JEL to JSL. This ruling was not contested or altered by the Appellate Authority.

4. Applicability of GST on job work charges payable to JEL by JSL:
The Advance Ruling Authority concluded that the transaction between JEL and JSL was a supply of goods, not job work, and thus GST was applicable. The Appellate Authority upheld this conclusion but on different grounds, stating that coal used in the process is not covered as an input under the Standard Input Output Norms (SIO) for steel products under the Foreign Trade Policy and that coal would be consumed and irretrievable in the same form, thus not fulfilling conditions under Section 143 of the CGST Act.

5. Whether the Appellate Authority exceeded its jurisdiction by introducing new grounds not raised before the Advance Ruling Authority:
The Appellate Authority introduced new grounds, stating that coal is not an input for the manufacture of electricity and steel and that coal would be consumed and irretrievable, thus not meeting conditions under Section 143 of the CGST Act. The court held that the Appellate Authority is not precluded from considering new points missed by the Advance Ruling Authority. However, it must adhere to principles of natural justice by putting the petitioner on notice regarding new grounds and allowing them to respond.

6. Alleged violation of principles of natural justice by the Appellate Authority:
The court found that the Appellate Authority violated principles of natural justice by not notifying the petitioner about the new grounds and not providing an opportunity to submit relevant documents or evidence. The petitioner was faulted for not providing certain documents during appeal proceedings, but the Appellate Authority never called for these documents. This failure to provide notice and opportunity to respond resulted in a violation of natural justice, vitiating the decision-making process.

Conclusion:
The High Court set aside the Appellate Authority’s order dated 2 July 2018 due to the violation of principles of natural justice and remanded the matter for reconsideration. The petitioner was granted liberty to produce additional material or documentary evidence within a month, and the Appellate Authority was requested to dispose of the appeal within six months. The court clarified that it did not go into the merits of whether the proposed arrangement attracts GST, leaving this determination to the Appellate Authority. The Rule was made absolute with no order as to costs.

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