M/s. JSW Energy Limited (JEL), the applicant, seeking an advance ruling in respect of the applicability of GST on:
1. Supply of coal or any other inputs on a job work basis by JSL to JEL
2. Supply of power by JEL to JSL
3. Job work charges payable to JEL by JSL
APPLICABILITY OF GST ON THE PRESENT TRANSACTION
4.15. On establishing a job work arrangement between JSI, and JEL as per above, the applicability of GST on the subject transaction also needs to be examined. For the said purpose, reference is sought to Section 143(1) of the COST Act which allows movement of inputs or capital goods without payment of tax, to a job worker for job work activities. Accordingly, it is humbly submitted that movement of coal or any other inputs from JSL to JEL would not be subjected to tax on account of movement of inputs for job work activities.
4.16. As mandated under a job work arrangement, the Principal shall be required to bring back inputs after completion of job work or otherwise, within a period of one year of they being sent out without payment of tax. In the said context, the Applicant has submitted under paragraphs 4. 10 to 4.12 of this Application that the subject transaction is in accordance with the prescribed conditions of the job worker arrangement whereby inputs ( i.e. coal) is being returned to the Principal.
4.17. For determining the applicability of GST on Job Work charges, reference is sought paragraphs 4.13 and 4.14 of this document, In the said context, it is humbly submitted that ajob worker is engaged in supplying a service specified under Schedule II of the COST Act and accordingly OST 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 COST 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.
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.
The applicant before us is JEL. We refer to the GST Act to understand the mechanism of an Advance Ruling wherein clause (a) of section 95 says that
“95. In this Chapter, unless the context otherwise requires,
(a) “advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant:”
As can be seen the ruling is in respect of the supply undertaken or proposed to be undertaken by the applicant. If this is the case then we see that the question no.1 as posed before us pertains to supply by JSL and not JEL, the applicant. In view thereof, the same cannot be entertained by us. Further, during hearing, the applicant has also acceded to this question not being entertained by the Advance Ruling Authority in view of the supply being by JSL and not by JEL the applicant. We therefore restrict these proceedings to question nos.2 and 3 and move on to decide the same.
SUPPLY OF POWER BY JEL TO ISL
There is a supply of power by JEL to JSL. JEL has stated that JSL and JEL are related persons. A study of the application reveals that the applicant has submitted that
i. Movement of coal or any other inputs from 1SL to JEL would not be subjected to tax on account of of inputs for job work activities.
ii. GST would be applicable on the job work charges levied by JEL to JSL.
We are not concerned with (i) above as it is not a supply by JEL, As regards (ii) about supply of electricity by JEL to JSL, we will have to examine the correct position after analysis of GST provisions that will be applicable in the context of the present case.
As we begin to analyse, we see that the inputs provided by JSL to TEL are coal or any other inputs and after processing these, the output is electricity which is supplied to JSL. As an immediate observation, we have to say that the goods sent for job work are coal and after the so claimed process of ‘job work’ by TEL, 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 CST. 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 which has very lucidly explained the meaning of the term ‘treatment and processing.
Applying the ratio in the above case, we see that 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. And we find that the activity of ‘manufacture’ has been defined hi the GST Act which is as follows :
“(72) “manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct mane, character and use and the term “manufacturer” shall he construed accordingly;”
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 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’. 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 CST Act.
Here, we would like to say that the applicant has placed much reliance on certain case laws under the Central Excise Act which have been reproduced above. However, the case 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–vis the definition of input.
As can be seen, the processes involved in the above cases required that the inputs used may or may not have been found in the final product. The facts before us and the applicable provisions are different than those found in the case laws relied upon by the applicant. Further, we observe that the facts and applicable provisions being unambiguous, we do not feel the need to comment or discuss the other case laws and provisions as relied upon by the applicant.
We are of the firm view that 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.
We now invite attention to Section 7 of the GST Act which explains the scope of ‘supply’. It can be seen that sub-section (2) begins with the word “notwithstanding” and sub-section (3) begins with the words “Subject to the provisions of sub-sections (I) and (2)”. The way the sub-sections (2) and (3) are framed determines 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.
Para 2 of the Schedule I is about 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.
As can he seen the applicant has informed that in terms of sub-clause (v) of clause (a) of the Explanation to section 15, JSL and JEL are related persons on account of direct or indirect control over each other. In view thereof, in terms of para 2 of Schedule I, the supply of goods or services or both between JSL and JEL would be treated as supply even if made without consideration. Therefore, the supply of power by JEL to JSL would be a transaction of ‘supply’. And GST would be applicable on this supply.
JOB WORK CHARGES PAYABLE TO TEL BY JSL
As already discussed above, the transaction between JEL and JSL is a transaction of supply of goods and not a ‘job work’. And hence, the question does not survive.
Q.1 Applicability of GST on supply of coal or any other inputs on a job work basis by JSL to JEL
A. This question pertains to supply JSL and not JEL, the applicant. In view thereof, the same is not entertained.
Q.2 Applicability of GST on supply of power by JEL to JSL.
A. This question is answered in the affirmative.
Q.3 Applicability of GST on job work charges payable to JEL by JSL.
A. 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.