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TMI Blog2018 (5) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- "ANNEXURE 1 - STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED 1. This Application is being filed by JSW Energy Limited ('the Applicant'/'JEL'). The Applicant, having Good and Service Tax ('GST') Registration No.27AAACJ8109N1Z8 is engaged in the business of generation of power. The Applicant's power plant is divided into four units. 2. JSW Steel Limited ("JSL"), having GST Registration No. 27AAACJ4323N1ZG is engaged in manufacture and supply of steel. JSL requires power on a continuous and dedicated basis, for manufacturing steel at its steel plant. For the said purpose, JSL and the Applicant proposed to enter into an arrangement (herein after referred to as 'Job Work Agreement') pertaining to Unit Ill and Unit IV of the power plant which are in the nature of a captive power plant. 3. 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by g person on goods belonging to another registered person and the expression Job Worker shall he constructed accordingly," 2.2. On perusal of the aforementioned definition, it can be observed that all of the following three conditions need to be fulfilled to classify an activity as a Job Work, viz: (i) Treatment or process should be undertaken by a person; (ii) Such treatment or process should be on goods; and (iii) These goods should belong to another registered person 2.3 To summarize the above, under the GST Regime, a Job Worker shall undertake a treatment or process on the goods (i.e. inputs) -belonging to another person for the transaction to fall within the ambit of Section 2(68) of the CGST Act. 2.4 In addition to the above, Section 143 (1) (a) of the CGST Act requires bringing back of inputs, after completion of Job Work or otherwise, within one year of their being sent out, to any place of business of the Principal. Fulfilment of such a condition would allow movement of inputs between the said entities without payment of taxes. For the said purpose, inputs include intermediate goods arising from any treatment or processes carried out on the inputs by the Princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her: (vi) bath of them are directly or indirectly controlled by a third person: (vii) together they directly or indirectly control a third person: or they are members of the same family; JSL and JEL would be treated as related persons on account of direct or indirect control over each other. 2.8. On account of JSL and JEL being related person, valuation of supply of goods or services or both would be determined under the prescribed rules. For said purpose the Government vide Chapter IV of CGST Rules, 2017 ('the CGST Rules') has laid down the procedure for determining the valuation of the goods/services or both. 2.9. Rule 28 of the said rules prescribe that the value of supply of goods and services or both, where the supplier and recipient are related, shall be- • the open market value of such supply • if the open market value is not available, the value of supply of goods or services of like kind and quality 2.10. Further the proviso to above referred rule provides that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods and services. 2.11 In the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed between the Parties at such time as would enable JEL to comply with the Instructions Delivery Procedures and detailed operational procedures to ensure smooth delivery to and loading of Inputs shall be agreed in writing between the authorised representatives of the parties. 3.6. Measurement of Quantity The quantity of Inputs supplied shall be as weighed on JSL's 's [electronic weighbridges]. A representative of JEL may be present to witness the weighment. If the [weighbridges] fail, weight will he determined on mutually agreed volume to weight conversion basis. JEL at its expense, shall procure, install, own and maintain two sets of Metering System separately for each transformer as per regulations of Central Electricity Authority. The energy meter and associated equipment shall be of 0.2s accuracy class. These meters shall function as main meters and check meters. The general location of these meters shall be the metering point. Such equipment shall be capable of providing instantaneous output measurements to measure electrical output delivered at a specific time. 3.7 Records Supply of Inputs, including delivery challans documenting the movement of goods, and provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms 'treatment' or 'process' have not been defined under the GST laws, reliance is placed on various dictionary meanings and judicial precedents in this regard: • GST v. Samodar Padmanath Rao [1968 (22) STC 187 (Bom)]: = 1968 (2) TMI 102 - BOMBAY HIGH COURT "One of the meanings that can be given to the word 'process' is subject to a particular method or technique of preparation handling, or other treatment designed to affect a particular result" • Haldia Petrochemicals Ltd. v. Commissioner of C.Ex., Haldia [2006 (197) E.L.T. 97 (Tri.. Del.)] = 2005 (1) TMI 306 - CESTAT, NEW DELHI: In this case, it has been held that the term 'processing' a much wider term "ln the expressions "further processing" and "any other purpose" mentioned in Rule 4(5)(a) are fairly wide and would take their colour from the processes mentioned in the definition of 'input'. As such the generation of power or steam as intermediate products would fall the scope of these expression, and would amount to the Job Work" • S.B. Sarkar's Word & Phrases of Excise, Customs & Service tax. 4th Edition: Process means "Prepared, handled, treated or produced by a special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out by utilizing the inputs provided by JSL, and the mere fact that JEL processes the coal provided by JSL for generation of power does not give JEL any rights whatsoever over the power so generated; 4.8. In terms of the proposed arrangement between the parties, JSL is required to provide coal for generation of power by JEL. The said inputs are processed by JEL for generation of power by employing its plant and personnel, and JEL has no rights whatsoever to the resultant power. Accordingly, the activity undertaken by JEL on behalf of JSL would be classifiable as a Job Work activity. 4.9 The Applicant submits that there is no iota of doubt that the coal and the other inputs belongs to JSL and the ownership of the same always remain with JSL only. BRINGING BACK THE INPUTS Under the GST regime, the condition pertaining to return of inputs to the Principal is mentioned in paragraph 4.2. The same is in the line with the erstwhile CENVAT Credit Rules, 2004. For a better understanding of the scope of this condition, reference Gg to the judgment Of the Apex Court in the matter of Prestige Engineering (India) Limited vs Collector of Central Excise, [1994 (73) ELT 497 (S.C.)] = 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of Endurance Technologies, the High Court has concluded that input tax credit of the inputs used in generation of power under barter transaction, where the power is supplied back against the inputs, would be available. On basis of the above mentioned judgments it can be construed that transaction of processing the coal supplied by JSL and supplying back the power generated to JSL would fulfill the condition of bringing back the inputs. 4.12. As all the conditions mentioned under paragraph 4.2 required to be fulfilled by the Applicant in order to fall under the ambit of the term 'Job Work', are satisfied, the present transaction would be construed as a Job Work transaction and the Applicant would be considered as a Job Worker of JSL. CLASSIFICATION OF JOB WORK ARRANGEMENT AS A SUPPLY OF SERVICE 4.13. The Applicant seeks reference to Schedule II of the CGST Act and humbly submits that a job work arrangement would be in the nature of a supply of service. Entry 3 of the said schedule is reproduced as follows: 'Any Treatment or process which is applied to another person's goods is a supply of services.' 4.14. On the basis of the above, it is respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act and accordingly GST would be applicable on the said job worker charges. 4.18 In addition to the above, for the purpose of determining the value of job work charges subject to GST, reference is sought to Rule 28 of the CGST Rules mentioned under paragraphs 2.9 and 2.10 of this application, which pertains to valuation of supplies between related persons. As per the said rules, the value of supply of services would be the open market value of such supply. This term has been explained to mean the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made. Accordingly, it is submitted that GST would be applicable on the job work charges levied by JEL to JSL. SUBMISSION DT. 16.02.2018 1. MEANING AND DEFINITIONS 1.1. At the outset, we would like to refer to the definition of 'job work' as defined under Section 2(68) of the CGST Act. The said definition is reproduced as follows: Job work means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cited meanings and judicial interpretation, it is submitted that the term process is wide enough to cover even a mere handling of materials. Considering the scope of the said term, the Company humbly submits that the activities proposed to be carried out by the Company would fall within the ambit of the term 'process' or treatment'. 1.5. In addition to the above, the other pre-requisite for categorizing the proposed activity as a 'job work' would be the said treatment or process is required to be undertaken on goods belonging to another person. As per the proposed arrangement, coal would be supplied by the Principal (i.e. JSW Steel Ltd) to the Company for the purpose of carrying out the specified processes for generation of electricity which is supplied back to the owner of the coal, including the by-product i.e. fly ash. Thus, the Company humbly submits that the pre-requisites i.e. carrying out a treatment or process on goods belonging to another would qualify the proposed transaction under the ambit of a job work. 2. DEPARTMENTL FREQUENTLY ASKED QUESTION (FAQ) 2.1 Without prejudice to the above, the Company humbly submits that the definition of the term ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and reiterating what was stated during the personal hearing, the Company humbly submits that supply of goods, without payment of tax, for the purpose of a job work activity would be governed by Section 143 and subjected to the conditions mentioned therein. Further the Company humbly submits that the legislature does not exclude related parties from entering into a job work arrangement, 4. APPLICABLE JUDICIAL PRECEDENTS 4.1. Without prejudice to the above submissions, the Company humbly submits before Your Honor certain judicial precedents wherein the facts arc squarely applicable to the present application. These can be cited as follows: • Commissioner Central Excise vs Indorama Textiles Ltd. [2010 (260) ELT 382 (Bom HC)] = 2009 (10) TMI 571 - BOMBAY HIGH COURT • Haldia Petrochemicals Ltd. vs. CCE, Haldia [2006 (197) ELT 97 (Tri-Delhi) = 2005 (1) TMI 306 - CESTAT, NEW DELHI • Sanghi Industries Limited vs CCE, Rajkot [2006(206) ELT 575 (Tri-Delhi)] = 2006 (4) TMI 422 - CESTAT, NEW DELHI • Sanghi Industries Limited vs CCE, Rajkot [2014 (302) ELT 564 (Tri.-Ahmd.)] = 2014 (2) TMI 278 - CESTAT AHMEDABAD A copy of the aforesaid cases were submitted at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and three years, respectively, of their being sent out, to any of his place of business, without payment of tax; (b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be: Provided that the principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job worker as his additional place of business except in a case- (i) where the job worker is registered under section 25; or (ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner. (2) The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal. (3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise in accordance with the provisions of clause (a) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to a conclusion about whether an activity is a job work or not. The real question to be decided in the instant matter is that whether combustion of subject goods 'coal' for generation of electricity would amount to 'treatment or processing' of coal. The answer is negative because the subject goods 'coal' being in the nature of tangible goods are used in this case for combustion in the boiler to convert water in to steam. The generated steam is in turn is supplied to the turbine to generate electricity. And the goods 'electricity' is intended to be supplied to JSL in lieu of coal. This itself means that the inputs supplied by the principal are not subjected to any 'treatment or process' but they are used/consumed to generate/manufacture 'electricity'. As such the processed/treated upon goods are not returned to the principal only the ash or residue is proposed to be returned back. And the goods proposed to be returned back to the principal coal ash/residue can not be deemed as processed goods. One illustrative example of job work on coal is conversion of coal into Coke. Coal can be subjected to destructive distillation to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er plant which are in the nature of a captive power plant. * In terms of the proposed agreement, JSL would supply coal or any other inputs to JEL 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. * The above can be further explained as under : a. JSL imports coal from suppliers located outside India. b. Required inputs (such as coal) would be supplied by JSL to JEL. For the purpose of this arrangement, JSL shall be treated as a 'Principal'. On receiving the inputs, JEL shall undertake the activities in accordance with the Job Work Agreement. c. Power generated from the aforesaid activities shall be supplied back to the Principal. d. JEL would recover charges from JSL in accordance with the Job Work Agreement. Each invoice shall contain details of the inputs supplied to JEL and power supplied to JSL and the charges for services rendered during the preceding month, applicable taxes and the date of payment for the said consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;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. We find that the definition of job work under GST Act is as under - "(68) "job work" means any treatment or process undertaken by a person on goods belonging to another registered person and the expression "job worker" shall be construed accordingly: 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. For this proposition, we draw support from the decision of the Hon. Supreme Court in Manganese Ore India Ltd. v. State of M.P., (2017) 1 SCC 81 : 2016 SCC OnLine SC 1280 = 2016 (11) TMI 543 - SUPREME COURT which has very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would lead to creation of a different commodity as known in the commercial world for otherwise even manufacturing activity would get covered, whereas manufacturing unit is liable to pay electricity tariff at a lower rate. The intent and purpose is certainly not to compel and force a manufacturing unit being set up at an acceptable distance from the mine, for the manufacturing unit adjacent to the mine would have to pay electricity tariff at a higher rate. Pertinently, a manufacturing unit set up by another entity, whether adjacent to the mine or not, would pay a lower tariff Such absurdity and irrationality has to be avoided. In the present context, we would, therefore, hold "processing" would mean activities in order to make the mineral mined marketable, saleable and transportable, without substantially changing the identity of the mineral, as mined When there is a substantial change at the mineral mined and the process results in a different commodity being produced or transforming and completely changing the mineral, it would fall outside the scope of the word "processing". The restricted construction will also be acceptable in view of the use of the word "mineral" at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se laws deal with the provisions as were available under the said Act. Such are not the facts in the instant case. We find that these case laws relied upon by the applicant were in the context of eligibility of input tax credit vis-a-vis the definition of input. For the sake of better understanding, we would like to reproduce one such definition which was in consideration in the case of Haldia Petrochemicals Ltd. vs CCE, Haldia [2006 (197) ELT 97 (Tri.- Delhi)] - = 2005 (1) TMI 306 - CESTAT, NEW DELHI "input means all goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final product whether directly or indirectly and whether contained in the final product or not, and includes accessories of the final products the final products cleared along with final products goods used as paint, or as packing material, or as fuel or for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production and also includes lubricating oils, greases. cutting oils and coolants." As can be seen, the processes involved in the above cases required that the inputs us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermines the effect of the provisions in sub-section (1). Now we see that clause (c) of sub-section (1) refers to activities specified in Schedule I. It is further specified that these activities of Schedule I may be made or agreed to be made without a consideration. So we shall have a look at the Schedule I thus - "SCHEDULE I [See Section 7] ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 4. Import of services by a taxable person from a related person or from any o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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