Dr. Sanjiv Agarwal

In March, 2018, Authority for Advance Ruling (AAR), Maharashtra had pronounced a ruling on job work vis-à-vis manufacture in relation to supply of goods (electricity). The advance ruling under reference is in the matter of Re  JSW Energy Ltd. [(2018) 13 GSTL 92; (2018)5 TMI 763; (2018) 93 taxmann.com 91 (AAR-Maharashtra)] with reference to scope of ‘supply’ under section 7 of the GST law.

Advance Ruling

Accordingly, it was ruled that where applicant-power company i.e. JSW Energy Ltd. (JEL) generates power from coal supplied by JSL, a steel company, and JEL supplies power to Jindal Steel Ltd. (JSL), activity under taken by JEL amounts to manufacture of electricity from coal as supplied by JSL and is squarely covered in definition of ‘manufacture’ under GST Act and is a transaction of supply of goods. Such activity is therefore, not covered under scope of definition of ‘job work’ under GST Act.

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 was not to cover such treatment or process as would result into a distinct commodity. The activity, in fact, was a manufacture of electricity.

In the instant case, the end product i.e., ‘electricity’ had a distinct name, character and use than the inputs i.e., “coal”. Thus, when the Legislature had 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 was to restrict the scope of ‘job work’ to ‘treatment’ or ‘process’ and not to extend the same to ‘manufacture’.

It was therefore, held that the activity undertaken by JEL amounted to manufacture of electricity from the coal as supplied by JSL and was squarely covered in the definition of manufacture’ under the GST Act. It was, thus, ruled that it is not covered by the scope of the definition of ‘job work’ under the GST Act as contended by the applicant.

Appellate Order

Being aggrieved by the aforesaid advance ruling, applicant approached the Appellate Authority for Advance Ruling for GST (AAAR) for setting aside the ruling and give further orders.

The Authority for Advance Ruling in their order dated 05.03.2018 has decided that since JSL are not the applicant in the proceedings, the ruling sought by JEL on behalf of  JSL was not entertained. In respect of ruling sought by the applicant i.e. JEL regarding conversion of coal (to be levied by 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 JEL are beyond the process and treatment, and thus not covered under the definition of job work.

The Appellate Authority discussed in detail the interpretation on meaning of job work and manufacture and whether activity involved was supply of goods and/or job work or not. The Appellate Authority concluded that the activity undertaken by JEL to convert coal, to be supplied by JSL, in electricity is not covered under the definition of job work in terms of the CGST Act. Since goods supplied by JSL will be utilized by 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.

It was therefore, held that 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 JSL does not qualify for job work under section 2(68) and section 143 of the said Acts.

To this extent, Advance Ruling was modified.

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