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2021 (5) TMI 1052 - AAR - GSTLevy of Compensation Cess - total quantity of raw coal or washed coal - coal rejects supplied by Coal Washery are exempt from levy of Compensation Cess once Compensation Cess on raw coal or, washed coal and coal rejects, as the case may be, is discharged, or not - whether subsequent supply (or sale) of coal rejects attracts Compensation Cess? HELD THAT:- It is of paramount importance to analyze the relationship between the two parties involved under CMDA and the contractual arrangement between them. PKCL, the Applicant has entered into a contract for rendering mining services to RVUNL including washing of coal and the Applicant has, in turn, contracted the work of actual mining to AEL, who is the Mining Contractor. The mining contractor raises an invoice for mining services and discharges GST at the rate applicable to services, which is 18%. Thereafter, the Applicant, on a back to back basis, as per the CMDA with RVUNL, raises an invoice on RVUNL. The Applicant levies and collects 18% GST on the mining fee charged by it under the contract - As per the conditions envisaged under the contractual CMDA, between the Applicant and RVUNL, the Mining Contractor AEL not only undertakes mining, but has also been entrusted upon with the work of washing of the coal. Accordingly, once the mined raw coal is subjected to the process of washing, emergence of rejects is inevitable in the course of washing of raw coal. There is no ambiguity as regards the fact that washed coal and coal rejects are two separate commercial products arising consequent to the process of washing of raw mined coal. It is also seen from the CMDA that both the parties involved viz.. Applicant and RVUNL Chhattisgarh have also separately recognized and dealt with washed coal and rejects in the said CMDA. RVUNL Chhattisgarh transfers washed coal to RVUNL Rajasthan. This is a supply under Section 7 of the CGST Act, 2017. RVUNL Chhattisgarh and RVUNL Rajasthan are distinct persons having separate GST registrations. Consequently, RVUNL Chhattisgarh, as required under law issues a taxable invoice in the name of RVUNL Rajasthan for the quantity of the washed coal supplied - it follows that the Applicant has a right to receive the coal rejects from RVUNL. It also follows from the said CMDA that RVUNL raises a tax invoice in favour of the Applicant for the rejects, to give effect to the above clause in the CMDA. Such tax invoice is evidence of transfer of property in the coal rejects from RVUNL to the Applicant, as contemplated in Clause 3.4.1 of the CMDA. The same constitutes a supply within the meaning of Section 7 of the CGST Act, 2017 on which GST as well as Compensation Cess has to be discharged by the supplier. What is important is that the supplier of coal, which is RVUNL in the present case, has declared that they are paying the appropriate tax and cess on the total quantity of the coal raised / mined, through the mining services received by it from the said mining contractor - Sr. No. 41A of Notification no. 01/2017- Compensation Cess dated the 28th June, 2017 as amended vide Notification no. 02/2018-Compensation Cess (Rate) dated 26/07/2018, read with corrigendum issued under F.No.354/255/2018-TRU (Pt-11) dated 2/8/2018, effective from 27th July, 2018, in very unambiguous terms provides that NIL rate of Compensation Cess would apply only in the case of coal rejects supplied by a coal washery, arising out of coal on which Compensation Cess has been paid and no input tax credit of the Compensation Cess paid on coal is availed by any person. The expression 'arising out of would mean 'to originate from' or 'come into being' and the expression 'arise' has been defined in the Concise Oxford Dictionary to mean 'to occur as a result of'. In the facts and circumstances of the present case, the raw coal is the genus of which washed coal and reject coal are subsets. The reject coal arises on account of washing of the raw coal. The coal rejects supplied by the Applicant should arise out of the raw coal mined and Compensation Cess on the entire quantity of raw coal mined as applicable has been paid and further that it would not be sufficient compliance of the conditions of Sr. No. 41A of Notification No. 1/2017-CC, if Compensation Cess has been paid only on the washed coal and not on the entire quantity of row coal raised /mined. Besides this for availing the said exemption, input tax credit on the compensation cess so paid on the said raw coal raised should also not be availed by any person.
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