TMI Blog2018 (5) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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 definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act/MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- ANNEXURE 1 - STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED 1. This Application is being filed by JSW Energy Limited ('the Applicant'/ JEL'). The Applicant, having Good and Service Tax ( 'GST' ) Registration No.27AAACJ8109N1Z8 is engaged in the business of generation of power. The Applicant's power plant is divided into four units. 2. JSW Steel Limited ( JSL ), having GST Registration No. 27AAACJ4323N1ZG is engaged in manufacture and supply of steel. JSL requires power on a continuous and dedicated basis, for manufacturing steel at its steel plant. For the said purpose, JSL and the Applicant proposed to enter into an arrangement (herein after referred to as 'Job Work Agreement' ) pertaining to Unit Ill and Unit IV of the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed activity by the Applicant, discussed hereunder. 2. POSITION OF LAW PROVISIONS REGARDING 'JOB WORK' UNDER THE GST REGIME 2.1 The term 'Job Work' is defined under Section 2(68) of the CGST Act, 2017 as under: (68) Job work means any treatment or process undertaken by g person on goods belonging to another registered person and the expression Job Worker shall he constructed accordingly, 2.2. On perusal of the aforementioned definition, it can be observed that all of the following three conditions need to be fulfilled to classify an activity as a Job Work, 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 2.3 To summarize the above, under the GST Regime, a Job Worker shall undertake a treatment or process on the goods (i.e. inputs) -belonging to another person for the transaction to fall within the ambit of Section 2(68) of the CGST Act. 2.4 In addition to the above, Section 143 (1) (a) of the CGST Act requires bringing back of inputs, after completion of Job Work or otherwise, within on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or directors of one another 's businesses: (ii) legally recognized partners in business; (iii) employer and employee. (iv) persons (including legal persons) who directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting slack or shares of both of them; (v) one of them directly or indirectly controls the other: (vi) bath of them are directly or indirectly controlled by a third person: (vii) together they directly or indirectly control a third person: or they are members of the same family; JSL and JEL would be treated as related persons on account of direct or indirect control over each other. 2.8. On account of JSL and JEL being related person, valuation of supply of goods or services or both would be determined under the prescribed rules. For said purpose the Government vide Chapter IV of CGST Rules, 2017 ('the CGST Rules') has laid down the procedure for determining the valuation of the goods/services or both. 2.9. Rule 28 of the said rules prescribe that the value of supply of goods and services or both, where the supplier and recipient are related, shall be- the open market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spose of the Inputs. 3.4. Title and Risk of Loss JSL warrants that at all limes it shall have good title to all Inputs delivered to JEL its transfer is lawful, and at the time of delivery such Inputs will be free and clear of any lien, claim. demand, security Interest or other encumbrance. JSL Shall retain title to and risk of loss with respect la the Inputs supplied to JEL. 3.5. Loading and Delivery JSL shall supply the Inputs, as may he agreed between the Parties at such time as would enable JEL to comply with the Instructions Delivery Procedures and detailed operational procedures to ensure smooth delivery to and loading of Inputs shall be agreed in writing between the authorised representatives of the parties. 3.6. Measurement of Quantity The quantity of Inputs supplied shall be as weighed on JSL s 's [electronic weighbridges]. A representative of JEL may be present to witness the weighment. If the [weighbridges] fail, weight will he determined on mutually agreed volume to weight conversion basis. JEL at its expense, shall procure, install, own and maintain two sets of Metering System separately for each transformer as per regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ambit of term 'goods' c) These inputs/goods should belong to JSL d) Inputs should be brought back after completion of Job Work or Otherwise, within one year of their being sent out, to any place of business of the Principal. Fulfillment Of the conditions mentioned above are explained hereunder: ACTIVITY UNDER TAKEN BY COMPANY AMOUNTS TO 'TREATMENT OR PROCESS' 4.3. In terms of the first condition, the activities undertaken by the Applicant should qualify as a treatment/ process. Given that the terms 'treatment' or 'process' have not been defined under the GST laws, reliance is placed on various dictionary meanings and judicial precedents in this regard: GST v. Samodar Padmanath Rao [1968 (22) STC 187 (Bom)]: = 1968 (2) TMI 102 - BOMBAY HIGH COURT One of the meanings that can be given to the word 'process' is subject to a particular method or technique of preparation handling, or other treatment designed to affect a particular result Haldia Petrochemicals Ltd. v. Commissioner of C.Ex., Haldia [2006 (197) E.L.T. 97 (Tri.. Del.)] = 2005 (1) TMI 306 - CESTAT, NEW DELHI : In this case, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement between JEL and JSL, the relevant clauses of which have been set out at paragraph 3 hereinabove. Upon perusal of the said clauses, the following emerge as the key features of the contractual and commercial arrangement between the parties: JSL is to provide coal or any other inputs on free-of-cost basis to JEL, and the ownership of coal or any other inputs will remain with JSL at all times; JSL shall be the sole and absolute owner of the power generated by JEL; JEL cannot in any manner deal with the power that is generated from the processing which is carried out by utilizing the inputs provided by JSL, and the mere fact that JEL processes the coal provided by JSL for generation of power does not give JEL any rights whatsoever over the power so generated; 4.8. In terms of the proposed arrangement between the parties, JSL is required to provide coal for generation of power by JEL. The said inputs are processed by JEL for generation of power by employing its plant and personnel, and JEL has no rights whatsoever to the resultant power. Accordingly, the activity undertaken by JEL on behalf of JSL would be classifiable as a Job Work activity. 4.9 The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above principle. Relevant extract of the India Cement Ltd case is reproduced as follows: Our view above is fortified from the judgment of the Hon'ble High Court of Bombay in Central excise appeal No. 14/012 in the case of CCE, Aurangahad Endurance Technology disposed 02.12.2014. The Hon ble Court examining the meaning of 'input' under Cenvat Credit Rules, 2004 and admissibility of credit of tax on such input held that there should not be inadmissibility of input credit on input or input services used by wind mills to generate energy which is made available through power board under barter system. In the judgment of Endurance Technologies, the High Court has concluded that input tax credit of the inputs used in generation of power under barter transaction, where the power is supplied back against the inputs, would be available. On basis of the above mentioned judgments it can be construed that transaction of processing the coal supplied by JSL and supplying back the power generated to JSL would fulfill the condition of bringing back the inputs. 4.12. As all the conditions mentioned under paragraph 4.2 required to be fulfilled by the Applicant in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a job worker is engaged in supplying a service specified under Schedule II of the CGST Act and accordingly GST 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 CGST 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 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the accomplishment of some result. The activity contemplated by the definition s perfectly general requiring only the continuous or quick succession. It is not one of the requisites that the activity should Involve some operation on some material in order to conversion to some particular stage. There is nothing in the natural meaning of the word process' to exclude its application to handling. There may be a process winch consists only m handling and there may be a process which involves no handling or not merely handling but use or also use. It may be a process Involving the handling of the malarial and it need not be a process involving the use of material... 1.4 In light of the above cited meanings and judicial interpretation, it is submitted that the term process is wide enough to cover even a mere handling of materials. Considering the scope of the said term, the Company humbly submits that the activities proposed to be carried out by the Company would fall within the ambit of the term 'process' or treatment'. 1.5. In addition to the above, the other pre-requisite for categorizing the proposed activity as a 'job work' would be the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act which defines the ambit of the term 'supply'. The said Section also seeks reference to Schedule I wherein supplies of goods or services or both between related persons or between distinct persons made in the course or furtherance of business without consideration would be deemed to be a supply. 3.2. In light of the above inclusion, the Company also refers to Section 143 of the CGST Act wherein for the purpose of job work, a Principal may send inputs or capital goods without payment of tax to a job worker, subject to fulfilment of certain prescribed conditions, without any transfer of ownership permanent or temporary, defacto or dejure. 3.3. Based on a harmonious reading of Section 7 and Section 143 of the CGST Act and reiterating what was stated during the personal hearing, the Company humbly submits that supply of goods, without payment of tax, for the purpose of a job work activity would be governed by Section 143 and subjected to the conditions mentioned therein. Further the Company humbly submits that the legislature does not exclude related parties from entering into a job work arrangement, 4. APPLICABLE JUDICIAL PRECEDENTS 4.1. Without prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rker shall be construed accordingly. And the provisions governing job work procedure are set out in Section 143 of the CGST Act, 2017. Therefore the scope and meaning of the term 'job work' has to be decided by taking into account provisions governing the job work procedure. Job work procedure. 143. ( 1) A registered person (hereafter in this section referred to as the principal ) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise, and shall, (a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax; (b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b work such goods must necessarily be returned to the principal. In another words the goods supplied by the principal to be treated and processed upon by the job worker and processed goods to be returned to the principal- Though in the definition of job work it is specified that the job worker can undertake any process or treatment, the provisions governing the job work procedure are the deciding factor to qualify whether any process or treatment amount to job work. And the basic underlying principal of job work is that the goods sent for job work may be subjected to any process or treatment but said goods after such treatment/process must be returned to the principal. Both the definition of Job Work given in Section 2(68) of CGST Act, 2017 and the procedure in Section 143(a) of the CGST Act, 2017 should be read in conjunction while coming to a conclusion about whether an activity is a job work or not. The real question to be decided in the instant matter is that whether combustion of subject goods 'coal' for generation of electricity would amount to 'treatment or processing' of coal. The answer is negative because the subject goods 'coal' being in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, Superintendent attended on behalf of the concerned officer from the Central Tax Office and furnished a written submission. 05. OBSERVATION We have gone through the facts of the case. The issue put before us is in respect of a future transaction which would be on the lines thus- JSW Steel Limited (JSL) and JSW Energy Limited (JEL), as the applicant informs, are related persons on account of direct or indirect control over each other. JEL, the applicant, is engaged in the business of generation of power. The applicant's power plant is divided into four units. JSL is engaged in the manufacture and supply of steel. JSL requires power on a continuous and dedicated basis, for manufacturing steel at its steel plant. For the said purpose, JSL and JEL proposed to enter into a Job Work Agreement pertaining to Unit III and Unit IV of the power plant which are in the nature of a captive power plant. In terms of the proposed agreement, JSL would supply coal or any other inputs to JEL on a free-of-cost basis. On receipt of the same, JEL would undertake certain processes to convert the said inputs into power. In accordance with the Job Work Agreement, the title to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. 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 JSL to JEL would not be subjected to tax on account of movement 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 JEL 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 JEL, 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be given a very wide meaning, for the legislative intent, according to us, is narrower. The word 'processing would take its meaning in the cognate sense. In other words, the general word processing will be restricted to the sense conveyed by the words crushing , treating and transporting . The intent being that electricity tariff payable in respect of mining activities would include the mine itself all machinery situated or located in the mine or in a premises adjacent the to mine wherein crushing, processing, treatment or transportation of the minerals as mined is undertaken. The word processing herein would mean those processes with the help of hands or machineries connected and linked to mining activity. It would not include process by which a new or different article other than the one which has been mined, is produced. It relates and signifies the composite activity of mining and processing. The intent is not to include processes which would lead to creation of a different commodity as known in the commercial world for otherwise even manufacturing activity would get covered, whereas manufacturing unit is liable to pay electricity tariff at a lower ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 GST 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. 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 (1) 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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. We would now look at the third question - JOB WORK CHARGES PAYABLE TO JEL BY JSL As already discussed above, the transaction between JEL and ISL is a transaction of supply of goods and not a 'job work'. And hence, the question does not survive. In view of all above deliberations, the questions can be answered thus - 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-05/2017/B-08 Mumbai, dt. 05/03/2018 For reasons as discussed in the body of the order, the questions are answered thus - Q.1 Applicability of GST on supply of coal or any other inputs on a job work basis by JSL to JEL A. This questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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