In re M/s JSW Energy Limited (GST AAAR Maharashtra)
It was held that 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.
Also Read AAR Ruling- Coal supply by JEL for power generation is deemed supply of goods: AAR
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
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 the Appellant and M/s JSL does not qualify for Job Work under Section 2(68) and Section 143 of the said Acts.
PROCEEDINGS
(under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by M/s JSW Energy Limited, (herein after referred to as the “Appellant”) who has preferred appeal against the Advance Ruling No. GST-ARA-05/2017/B-04 dated 05.03.2018.
FACTS OF THE CASE
A. JSW Energy Limited, (hereinafter referred to as “the Appellant”) is engaged in the business of power generation and having Goods and Services Tax (‘GST’) Registration NO.27AAACJ8109N1Z8.
B. JSW Steel Limited (“JSL”), having GST Registration No.27AAAG4323N1ZG is engaged in manufacture and supply of steel. The manufacturing activity undertaken by JSL requires power on a continuous and dedicated basis. For the said purpose, JSL and the Appellant (both being related party in terms of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) propose to enter into an arrangement (hereinafter referred to as the ‘Job Work Arrangement’) for the purpose of supply of coal and processing of the same into power for captive use by JSL.
C. The Appellant’s power plant is divided into four units and the said Job Work Arrangement is pertaining to Unit III and Unit IV of the power plant. These are in the nature of captive power units and by virtue of the arrangement, JSL would be construed as Principal and JEL would be working as Job Worker.
D In terms of the proposed arrangement, JSL would procure coal or any other inputs (herein after collectively referred to as ‘inputs’) and supply the same to the Appellant for the purpose of carrying out the activity of generation of power. On receipt of the same, Appellant would, dertake certain processes to convert the said inputs into power. The detailed process is explained in Exhibit – 1 to the Appeal. The power generated from the aforesaid process on inputs will be supplied back to JSL for which the Appellant would be receiving job work charges as per the rate that would be agreed as per the Job Work Arrangement. During the whole process under the Job Work Agreement, the title In the inputs vest with JSL along with the power generated with the use of such inputs. In addition to power, fly ash and other resultant products generated at power plant using the Inputs will also vest with JSL and the Appellant will have no ownership in such resultant products.
E. The Appellant had approached the Advance Ruling Authority (AAR) for seeking an advance ruling under Section 95(a) of the CGST Act, for determination of the applicability of GST on the following issues [The copy of the application filed before the AAR was enclosed as Exhibit – 2 to the Appeal) –
I. Supply of coal or any other inputs on a job work basis by JSL to JEL
II. Supply of power by JEL to JSL
III. Job work charges payable to JEL by JSL
Personal Hearing And Additional Submissions before the AAR
F. Personal hearing was granted to the Appellant on 30.01.2018 and 15.02.2018 where the Appellant reiterated the submissions made in the application filed before the AAR.
G. The Appellant had also made additional written submissions on 20.02.2018 reiterating all the submissions made in the application and certain additional grounds including response to queries raised by AAR. A copy of the additional submissions was enclosed as Exhibit – 3 to the Appeal.
Order passed by AAR
H. The Order dated 05.03.2018, received by the appellant on 09.03.2018, has been passed by AAR holding that the proposed transaction amounts to manufacture and therefore it would not qualify as ‘job work’ under GST on account of the following:
i. The proposed activity of the Appellant is manufacture which cannot be read into the words ‘treatment or process’ as found in the definition of ‘job work’.
ii. The Impugned Order, relying on the decision of Manganese Ore India Ltd. V. State of M.P. [(2017) 1 SSC 81] has held that intent of the legislation is not to cover such ‘treatment or process’ into the ambit of the ‘job work’ which results into a distinct commodity and thereby amounting to manufacture.
iii. The judgments of the courts, relied upon by the Appellant, in relation to job work under the erstwhile regime have been negated on the premise that all the judgments quoted in the application and the additional written submissions are in the context of input tax credit which is not the issue in the current facts.
iv. Since JEL and JSL are related parties, any supplies made between them, even without consideration will be subject to GST.
The Impugned Order has not responded on the GST implication in respect of the coal and other inputs supplied by the JSL to Appellant on the basis that the transaction pertains to GST liability of JSL and not of Appellant.
Being aggrieved by the Impugned Order, the Appellant has filed the appeal before this appellate authority making prayer to set aside the said impugned order passed by the Advance Ruling Authority and give further order in the facts and circumstances of the case on the following grounds–
GROUNDS OF APPEAL
JOB WORK WIDER IN SCOPE TO ALSO INCLUDE MANUFACTURE
The AAR has grossly erred in passing the Impugned Order In law while attempting to interpret job work as a process or treatment which does not result in manufacture of a distinct commodity.
2. On perusal of the relevant provisions of CGST Act, it is submitted that if all of the following conditions are fulfilled, the transaction would qualify as an activity of job work and consequently the Principal will be allowed to send the goods without payment of tax 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
3. The Impugned Order does not dispute the fact that the conditions stated above are getting fulfilled in respect of the transaction between JSL and the Appellant, except condition (i) as stated above. The entire edifice on which the Impugned Order stands is that the resultant product, namely Electricity, is a distinct commodity which is not identifiable with the inputs, hence such activity will be covered under ‘manufacture’ and being a manufacturing activity, it will not qualify as ‘job work’. The relevant extract of the Impugned Order is reproduced below: –
Page 9 of the Impugned Order
………..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. For this proportion, 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 which has very lucidly explained the meaning of the term ‘treatment and processing’.
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Page 10 of the Impugned Order after the definition of ‘manufacture’ under the CGST Act,
As can be seen the definition itself says that the emergence of a new product from the processing of the inputs would be a manufactured product. 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 recognised 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. We need not deliberate more on the issue as the emergence of a distinct commodity is very obvious and therefore beyond the applicability of the definition of ‘job work’ under the GST Act”
4. The Appellant submits that in order to evaluate the terms ‘job work’ and ‘manufacture’ reference is made to the definition of ‘Job Work’ and ‘Manufacture’ under CGST Act-
I. Section 2(68) of the CGST Act defines ‘Job Work’ as – “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
II. Section 2(72) of the CGST Act defines ‘Manufacture’ as – “manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly;”
5. The harmonious interpretation of the above definitions, in order to understand the meaning of job work’ can be explained by way of the following diagram –
