2020 (6) TMI 704 - AAAR - GST

Job-Work - minor additions or not - other inputs,e.g. air, water etc., procured by the Appellant, i.e. JEL, which are essentially required for the generation of power - Circular No. 79/53/2018-GST dated 31.12.2018 - violation of principles of natural justice. Whether steam coal, proposed to be supplied to the Appellant i.e. JEL, constitutes one of the inputs for JSL, which manufactures the steel products? - HELD THAT - We are inclined to revise our earlier opinion, where we had denied the eligibility of the coal as an input for JSL. Thus, in light of the above submissions, it is adequately clear that coal is an input for JSL, as the same is used for the generation of electricity, which in turn is used for the manufacture of the final product i.e. steel. On perusal of the Bombay High Court Judgment in the case of COMMISSIONER VERSUS INDORAMA TEXTILES LTD. 2010 (7) TMI 981 - SC ORDER , it is established that electricity can be generated on the Job work basis. It is further inferred that when electricity can be generated on job work basis, it is bound to happen that any inputs sent to the premises for the generation of electricity would not be sent back in the same original form. Instead, the same is destined to be consumed for the generation of electricity, which was actually the facts of the cited case law discussed herein above, wherein the Respondent i.e. lndorama Textiles Ltd. was vying to claim the input tax credit in respect of the furnace oil, which was getting consumed in the premises of their job worker. The Bombay High Court, in this case, decided in the favor of the Respondent, holding that the Respondent was justified in claiming input credit in respect of the furnace oil, being used at the job worker s premises for the generation of electricity, which was the intermediate goods, being received by the Respondent, in that case the principal - By applying the above case law in the instant case, it is opined that coal, despite being consumed in the process of the generation of electricity, thereby becoming irretrievable, will not preclude the proposed arrangement from being the job work transaction, as understood by the Appellant. The principal will not be in position to independently bring back the inputs from the premises of the job worker, thereby not satisfying the conditions laid out in section 143 (1)(a) of the CGST Act, 2017 - the proposed arrangement under consideration is satisfying the condition laid down under section 143 (1) (a) of the CGST Act, 2017 in respect of bringing back of the inputs by the principal i.e. JSL from the job worker s premises i.e. JEL, after the completion of the job work. Thus, the earlier observation in this regard is sought be revised. Accordingly, no GST will be leviable on this supply.

Summary

Issues Involved:
1. Whether the supply of coal or any other inputs by JSL to JEL for electricity generation qualifies as job work under GST.
2. Whether the supply of power by JEL to JSL is subject to GST.
3. Whether the job work charges payable to JEL by JSL are subject to GST.

Issue-wise Detailed Analysis:

1. Supply of Coal or Other Inputs by JSL to JEL for Electricity Generation as Job Work:
The Appellate Authority initially ruled that the transaction did not qualify as job work. They cited Section 2(68) and Section 143 of the CGST Act, which require that the inputs sent for job work must be brought back in the same form. The authority noted that coal would be consumed to generate electricity, thus transforming into a new commodity and not satisfying the condition of bringing back the inputs. Additionally, the presence of MSEDCL, a third-party regulator, was seen as a barrier to meeting the job work conditions.

Upon reconsideration, the Appellate Authority accepted the appellant's argument that coal is an input used in the manufacture of power, which is used for steel production. They referenced the definition of 'input' under Section 2(59) of the CGST Act and the term 'business' under Section 2(17). The appellant's reliance on the CBIC Circular No. 79/53/2018-GST and the Supreme Court judgment in Maruti Suzuki Ltd. vs. CCE was also considered. The authority concluded that coal constitutes an input for JSL and that electricity generation can be outsourced as job work, even if the input is consumed and transformed.

2. Supply of Power by JEL to JSL:
The initial ruling did not address the GST implications of the supply of power by JEL to JSL, focusing instead on whether the transaction qualified as job work. Upon reconsideration, the Appellate Authority acknowledged that the power generated would be supplied back to JSL and that the job work arrangement would involve the supply of electricity as an intermediate good. The authority concluded that the supply of power by JEL to JSL would be part of the job work arrangement and not subject to GST.

3. Job Work Charges Payable to JEL by JSL:
The initial ruling did not explicitly address the GST implications of the job work charges. Upon reconsideration, the Appellate Authority ruled that the job work charges payable to JEL by JSL would be subject to GST in terms of Notification No. 11/2017-C.T. (Rate) dated 28.06.2017, as amended by subsequent notifications. The authority clarified that while the supply of coal and the supply of power as part of the job work arrangement would not attract GST, the job work charges themselves would be taxable.

Additional Considerations:
The Appellate Authority also addressed the involvement of MSEDCL, concluding that the presence of a third-party regulator does not preclude the transaction from qualifying as job work. They noted that the transportation of goods between the principal and the job worker using third-party services, such as railways, is common and does not affect the job work status. The authority referenced the decision of the Bombay High Court in CCE, Aurangabad vs. Endurance Technologies Pvt. Ltd., which allowed credit on inputs and input services used by windmills to generate energy supplied through a power board under a barter system.

Final Ruling:
The Appellate Authority repealed its earlier observations and ruled that the proposed arrangement of supply of coal or any other inputs by JSL to JEL for electricity generation qualifies as job work. Consequently, no GST will be levied on this supply. The job work charges payable to JEL by JSL will be subject to GST in accordance with the relevant notifications.