In re JSW Energy Ltd. (GST AAAR Maharashtra)
The Appellate Authority for Advance Ruling is, hereby, held that the proposed arrangement of supply of coal or any other inputs by the principal i.e. JSL to the Appellant i.e. JEL for generation of electricity will be construed as job work. Accordingly, no GST will be leviable on this supply. Further, the supply of power by JEL to JSL, being an exempt supply, will attract nil rate of GST. Finally, the job work charges payable to JEL by JSL will be subjected to GST in terms of the provisions laid out in Notification No.11/2017-C.T. (Rate) dated 28.06.2017 as amended by various subsequent notifications.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, MAHARASHTRA
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 had 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 had preferred appeal against the Advance Ruling No. GST-ARA-05/2017/B-04 dated 05.03.2018.
The Maharashtra AAAR had, vide its Order No. MAH/AAAR/SS-RJ/01A/2019-20 dated 02.07.2018, disposed of the aforesaid appeal by holding as under:
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.
Further, under the facts and circumstances of the instant case, the transaction proposed to be carried out between the Appellant and M/s JSL does not qualify for Job Work envisaged under Section 2(68) read with Section 143 of the CGST Act, 2017.
The AAAR in the said ruling dated 02.07.2018 had observed as under:-
(i) The condition stipulated in the definition of the “Job work” provided under section 2(68) of the CGST Act, 2017, which envisages the presence of the two persons only, viz. the Principal and the job worker, in any job work transaction, is not satisfied due to the inevitable presence of the 3rd Party i.e. MSEDCL, which happens to be the power regulator in the state of Maharashtra having the authority to formulate the norms and guidelines regarding the electricity distribution within the state, which are required to be complied with by the entities seeking to use the distribution facility of MSEDCL.
(ii) Further, the condition prescribed for the ‘job work’ procedure as envisaged under section 143 (1)(a) of the CGST Act, 2017, which provides that a registered person is required to bring back the inputs from the premises of the Job worker after completion of job work or otherwise, is also not fulfilled by the Appellant owing to the following two reasons:-
(a) the inputs proposed to be sent by the Principal i.e. JSL to the Appellant i.e. JEL would get consumed to generate electricity, thus, in that case, the Principal i.e. JSL would not be in position to bring back the inputs that it proposes to send to JEL, as the same would get transformed into completely new commodity i.e. electricity;
(b) the presence of the above mentioned power regulator i.e. MSEDCL, which restricts the liberty and capability of M/s. JSL, the principal, in bringing back the inputs from the premises of the Job worker i.e. the Appellant, as the Principal is bound to follow the regulatory guidelines laid down by the Power regulator i.e. MSEDCL, which is subject to changes. Thus, the Appellant has no other option than to depend on the permissions granted by the regulator i.e. MSEDCL and the guidelines issued in this regard. Thus, the return of the inputs in the form of the electricity to the premises of the Principal is not guaranteed in the current circumstances, thereby, not satisfying the conditions of the job work procedure provided under section 143(l)(a) of the CGST Act, 2017.
(iii) It was, further, observed that since the Appellant, which claims itself to be the job worker in the proposed arrangement, will be adding air and water on its own account, which are of the considerable volume and cost, to the coal proposed to be supplied by JSL for the generation of the electricity, the Appellant will not be construed as job worker in light of the Hon’ble Supreme Court Judgment in the case of the Prestige Engineering (India) Vs. Collector of C.Ex. Meerut [1994 (73) E.L.T. 497 (S.C.)], wherein the Apex Court held as under:
“Job work means goods produced out of materials supplied by customer and where the job workers contribute mainly their labour and skill though done with the help of their own tools, gadgets or machinery – But when the job worker contributes his own raw material to the article supplied by the customers and manufactures different goods it does not amount to job work however addition or application of minor items by job worker would not detract it being a job work – Like a tailor stitching a shirt or suit out of the cloth supplied by his customer, may use his own buttons, thread and lining cloth and such an activity would amount to job work.”
Since, in the instant case, the other inputs, e.g. air, water etc., procured by the Appellant, i.e. JEL, which are essentially required for the generation of power, cannot be considered as the minor additions because of their volume and cost associated with them, the proposed arrangement/transaction will not have the essence or characteristics of the Job worker, as per the rulings of the aforesaid Supreme Court Judgment, which contemplates that only the minor additions of the inputs can be done by the Job worker on the inputs supplied by the principal in any job work activity.
Aggrieved by the above AAAR order, the Appellant had filed the writ petition before the Hon’ble Bombay High Court on the grounds that the Appellate Authority had exceeded its jurisdiction by introducing or relying upon the ‘new grounds’, which were never raised by the Revenue before the Advance Ruling Authority, and that too without putting the Appellant to notice in respect thereof, while deciding the subject appeal, thereby, resulting in the violation of the principles of natural justice.
The Hon’ble Bombay High Court, taking cognizance of the aforesaid writ petition and grounds therein, filed by the Appellant, passed an order dated 07.06.2019, wherein the Hon’ble Court has directed to reconsider the appeal under question by taking into account the additional submissions including the additional documentary evidence, proposed to be filed by the Appellant with regard to the new grounds adopted by the Appellant Authority while issuing the impugned Appellate Order dated 02.07.2018,as well as all the earlier grounds relied upon by the Appellant in the Appeal memo as well as in the advance ruling application filed before the Advance Ruling Authority.
In pursuance to the above High Court Order, the subject appeal is being reconsidered in light of the Appellant’s additional submissions dated 10.07.2019 as well as the earlier submissions made before the Appellate Authority. The Brief facts of the case and grounds put forth by the Appellant are being reproduced herein under.
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. 27AAACJ4323N1ZG 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 undertake certain processes to convert the said inputs into power. 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.
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:-
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
Order passed by AAR
E. The Order dated 05.03.2018 has been passed by AAR holding that the proposed transaction amounts to manufacture and therefore it would not qualify as ‘job work’ under GST.
F. 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.
G. 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–
Relevant Grounds of Appeal incorporated in the appeal memo dated 05.04.2018 in the context of reconsideration of the subject appeal
Electricity can be generated on job work is a settled law
1. The Appellant submits that it is well settled inter-olio in terms of the below mentioned judgments of the Courts that electricity being intermediate goods used in the manufacture of final product, can be generated on job work basis:-
