2018 (7) TMI 511 - AAAR - GST

Levy of GST - job-work - Supply of coal or any other inputs on a job work basis by JSL to JEL - Supply of power by JEL to JSL - Job work charges payable to JEL by JSL - whether the transaction between Appellant and JSL qualifies as 'Job Work'?. Whether the processing of goods belonging to another person qualifies as job work even if it amounts to manufacture? Held that - Since M/s JSL are not the applicant in the proceedings, the ruling sought by M/s JEL on behalf of M/s JSL was not entertained. In respect of ruling sought by the applicant i.e. M/s JEL regarding conversion of coal (to be supplied by M/s JSL) into electricity, the Authority decided the same as supply of goods and not as job work. The main ground for decision of the Authority lies in the fact that definition of Job Work covers 'process and Treatment' on goods, whereas in the instant case the operations carried out by M/s JEL are beyond the process and treatment, and thus not covered under the definition of Job Work. Whether, given the preposition that the definition of job work under the GST law may include even manufacture, the process of conversion of Coal into electricity by M/s JEL on behalf of M/s JSL is job work by M/s JEL or not? - Held that - On a harmonious reading of the definition of Job Work and the procedure for the same, it is construed that the principal will send the inputs to the job worker for conducting any treatment/process/ which may, or may not amount to manufacture) and shall bring back the same after completion of job work or otherwise Therefore the goods sent to the job worker should be the Inputs of the Principal here. M/s JSL are proposing to be the Principal, so the Inputs should belong to them. The inputs being utilized by M/s JSL for the manufacture of their final product i.e. Steel are not the same which they intend to send to M/s JEL for undertaking process on the same. Rather they are proposing to procure the steam coal which are inputs for the power plant of M/s JEL, the job worker and Intend to avail the credit of duty on the same which is otherwise not available to M/s JEL as their final product, i.e. electricity, does not fall in the ambit of the GST law - Assuming that the steam coal is also an input for M/s JSL as the same is utilized in the manufacture of Electricity which is finally used In the manufacture of final products of M/s JSL, the question arises how the requirements of Section 143 are met with regard to bringing back the Inputs after process/treatment on the inputs, as the inputs in this case are consumed in making electricity. The activity undertaken by M/s JEL to convert Coal, to be supplied by M/s JSL, in electricity is not covered under the definition of Job work in terms of the CGST Act. Since goods supplied by M/s JSL will be utilized by M/s JEL in manufacture of new commodity i.e. electricity (though attracting NIL rate of duty), the process is manufacture and the same will be considered as supply of goods and not service. Ruling - The processing undertaken by a person on the goods belonging to another registered person qualifies as job work even if it amounts to manufacture provided all the requirements under the CGST/MGST Act in this behalf, are met with. The Transaction between Appellant and M/s JSL does not qualify for job work under Section 2(68) and section 143 of the said Acts.

Summary

Issues Involved:
1. Whether the activity of converting coal into electricity qualifies as "job work" under GST.
2. Applicability of GST on the transaction between the parties.
3. Interpretation of terms "job work" and "manufacture" under the GST regime.

Detailed Analysis:

1. Whether the activity of converting coal into electricity qualifies as "job work" under GST:
The primary issue is whether the conversion of coal into electricity by the appellant (M/s JEL) for another registered person (M/s JSL) qualifies as "job work" under GST. The appellant argued that the activity should be considered as job work, citing the broader definition of job work under GST compared to the erstwhile regime. They contended that job work includes any treatment or process on goods belonging to another registered person, even if it results in the emergence of a new product, i.e., electricity.

The Advance Ruling Authority (AAR) had earlier ruled that the activity does not qualify as job work, as it results in the manufacture of a new commodity (electricity), which is distinct from the input (coal). The AAR relied on the Supreme Court's decision in Manganese Ore India Ltd. v. State of M.P., which clarified that the term "treatment or process" does not extend to activities resulting in the manufacture of a new product.

The appellant countered this by referring to various judicial precedents and CBEC clarifications that job work can include manufacturing activities. They emphasized that the definition of job work under GST is broader and not restricted to non-manufacturing processes.

2. Applicability of GST on the transaction between the parties:
The AAR held that since JEL and JSL are related parties, any supplies made between them, even without consideration, would be subject to GST. The appellant argued that the job work arrangement should allow the principal (JSL) to send goods without payment of tax, provided the conditions under Section 143 of the CGST Act are met.

The appellate authority examined whether the activity proposed by JEL on the goods supplied by JSL would be covered under job work. They noted that the principal must bring back the inputs after completion of job work or otherwise, as per Section 143(1)(a) of the CGST Act. However, in this case, the inputs (coal) are consumed in making electricity, which complicates the compliance with this requirement.

3. Interpretation of terms "job work" and "manufacture" under the GST regime:
The appellant argued that the terms "job work" and "manufacture" are not mutually exclusive under GST. They contended that job work includes any process or treatment on goods belonging to another person, which may or may not result in the manufacture of a new product. They relied on various judicial precedents and CBEC clarifications to support their argument.

The appellate authority, however, distinguished the cited judgments and noted that the central issue in those cases was not whether the activity qualifies as job work. They emphasized that the process cannot be considered job work if the job worker contributes substantial inputs of their own, which is the case here as JEL uses water and air in addition to coal.

The authority also highlighted the requirement under Section 143(1)(a) for the principal to bring back the inputs after processing, which is not feasible in this case due to the involvement of a third party (MSEDCL) in the distribution of electricity. This further complicates the compliance with the job work provisions.

Conclusion:
The appellate authority concluded that the activity of converting coal into electricity by JEL for JSL does not qualify as job work under Section 2(68) and Section 143 of the CGST Act. They held that the process is considered manufacture and the transaction is subject to GST. The order of the AAR was modified accordingly, and the appeal filed by JEL was dismissed.