2018 (5) TMI 763 - AAR - GST

Applicability of GST on supply of power - GST on Supply of coal or any other inputs on a job work basis by JSL to JEL - GST on Job work charges payable to JEL by JSL. - In terms of the proposed arrangement JSL would supply coal or any other inputs (herein after collectively referred to as inputs ) to the Applicant on a free-of-cost basis. On receipt of the same JEL would undertake certain processes to convert the said inputs into power. In accordance with the Job Work Agreement the title to the coal or any other inputs along with the power generated from the said inputs will vest with JSL. Held that - the inputs provided by JSL to JEL are coal or any other inputs and after processing these the output is electricity which is supplied to JSL. As an immediate observation the goods sent for job work are coal and after the so claimed process of job work by JEL the new product electricity comes into existence. It is very apparent that the goods which are received after job work are in no way identifiable with the goods which were sent for job work. Electricity is a totally new commodity which will be delivered to JSL. To ascertain whether conversion of coal into electricity would tantamount to being job work we need to examine the relevant provisions under the GST. As can be seen the definition calls for application of a treatment or process to the goods. Treatment or process in this definition would mean some processes on the goods but would definitely not mean a complete transformation of the input goods into a new commodity. The definition of job work in the GST Act uses the words treatment or process . The impugned activity undertaken by the applicant to convert the coal into electricity would not be covered by the words treatment or process as found in the definition of job work . Here the intent of the legislation is not to cover such treatment or process as would result into a distinct commodity. The activity in fact is a manufacture of electricity. In the instant case the end product i.e. electricity has a distinct name character and use than the inputs i.e. coal . Thus when the Legislature has provided for the definition of job work as well as manufacture the meaning as understood by the definition of manufacture cannot be read into the words treatment or process as found in the definition of job work . Treatment Process and Manufacture are three different activities recognized by the Legislature. The intent of the Legislature is to restrict the scope of job work to treatment or process and not to extend the same to manufacture . The activity undertaken by JEL amounts to manufacture of electricity from the coal as supplied by JSL and is squarely covered in the definition of manufacture under the GST Act. It is therefore not covered by the scope of the definition of job work under the GST Act as contended by the applicant. Ruling - the first question pertains to supply JSL and not JEL the applicant. In view thereof the same is not entertained - 2nd question is answered in the affirmative - as regards 3rd question The transaction between JEL and JSL is a transaction of supply of goods and not a job work and therefore the question does not survive.

Summary

Issues Involved:
1. Applicability of GST on supply of coal or any other inputs on a job work basis by JSL to JEL.
2. Applicability of GST on supply of power by JEL to JSL.
3. Applicability of GST on job work charges payable to JEL by JSL.

Issue-wise Detailed Analysis:

1. Applicability of GST on Supply of Coal or Any Other Inputs on a Job Work Basis by JSL to JEL:
The Authority for Advance Rulings (AAR) noted that the question pertains to the supply by JSL and not JEL, the applicant. As per Section 95 of the GST Act, an advance ruling must relate to the supply of goods or services undertaken or proposed to be undertaken by the applicant. Therefore, this question was not entertained by the AAR.

2. Applicability of GST on Supply of Power by JEL to JSL:
The AAR examined whether the conversion of coal into electricity by JEL could be classified as a job work. The definition of "job work" under Section 2(68) of the CGST Act involves undertaking any treatment or process on goods belonging to another registered person. The AAR found that the conversion of coal into electricity results in a new product, which falls under the definition of "manufacture" as per Section 2(72) of the CGST Act. The transformation from coal to electricity is a complete change in the identity of the goods, thus not qualifying as a job work. As JSL and JEL are related persons, the supply of power by JEL to JSL is treated as a supply under Schedule I of the CGST Act, even if made without consideration. Therefore, GST is applicable on the supply of power by JEL to JSL.

3. Applicability of GST on Job Work Charges Payable to JEL by JSL:
Given that the transaction between JEL and JSL is classified as a supply of goods (electricity) and not a job work, the question of GST on job work charges does not survive. The AAR concluded that the activity undertaken by JEL amounts to the manufacture of electricity from coal, and thus, the charges payable by JSL to JEL are for the supply of goods, not job work services.

Order:
1. The question regarding the applicability of GST on the supply of coal or any other inputs on a job work basis by JSL to JEL was not entertained as it pertains to the supply by JSL.
2. GST is applicable on the supply of power by JEL to JSL.
3. The transaction between JEL and JSL is a supply of goods and not a job work; hence, the question of GST on job work charges does not survive.