TMI Blog2018 (6) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 2000, which Rule was applicable where the excisable goods were produced or manufactured by a job-worker, on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him. The activity of manufacturing industrial gases viz. Oxygen, Nitrogen and Argon undertaken by the applicant amounts to Job Work as defined under Section 2(68) of the said Acts. Valuation - related party transaction - Held that:- The applicant and M/s. Essar are not related persons as defined under Explanation (a) and (c) of Section 15 of the said Acts - Further, the computation of Job Work Charges has been described at clause 6 of the agreement entered into between the applicant and M/s. Essar. The Job Work charge agreed by the applicant and M/s. Essar is the sole consideration payable by M/s. Essar to the applicant for the agreed activity to be carried out by the applicant - The value of supply by the applicant shall be the transaction value, which is the price actually paid or payable for the said supply as Job Charges, in view of sub-section (1) of Section 15 of the said Acts. Ruling:- The activity undertaken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raise a daily invoice for the fixed and variable job work charges for each product, based on the quantum cleared on that day; b. At the end of each month, the applicant will raise a supplementary invoice for additional consideration for the gases supplied in that month, equivalent to the difference between the monthly fixed and variable job work charges (as agreed by the parties) less the fixed and variable job work charges billed on a daily basis. A separate supplementary invoice will be raised for gas supply and for supply of vaporised liquid gas. c. At the end of each month, a supplementary invoice will also be raised on account of WPI / CPI escalation on the variable job work charges, based on the WPI / CPI index for the previous quarter. Again, a separate supplementary invoice will be raised for gas supply and for supply of vaporised liquid gas. d. One time job work charges charged for production within the first 30 days post commencement of production. e. Job work charges to be charged for operation of plant in excess of 355 days a year (subject to a maximum of 5 days). 2.4 It is submitted that under the pre-GST regime, the applicant was duly discharging Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires three primary ingredients viz. air, electricity and water for separation of the atmospheric air. These raw materials and inputs are supplied to them by M/s. Essar and the said activity of separation of air to obtain gases is done on behalf of M/s. Essar only. Therefore, the transaction in the present case clearly classifies as a job work transaction. They submitted that as clarified by the Circular D.O.F. No. 334/4/2006-TRU dated 28.02.2006 issued by the Ministry of Finance, which has reiterated the settled law (UOI Vs. Playworld Electronics Private Ltd. AIR 1990 SC 2002), that in order to determine the taxability of a transaction, it is essential to determine its true commercial nature. It is submitted that the perusal of various clauses of the Agreement between the applicant and M/s. Essar, the following emerge as key features of the contractual and commercial arrangement between the parties : (a) Essar is to provide designated land and all other inputs including electricity, industrial water etc. uninterruptedly, on free-of-cost basis to INOXAP, and the ownership of the land and inputs will remain with Essar at all times. (b) Essar shall be the sole and absolute ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity of separation of air to obtain industrial gases, such as Oxygen undertaken by the applicant amounts to a process and accordingly, the applicant is undertaking a process in the present case on the goods. Therefore, condition (a) mentioned above is fulfilled in the present case. 4.4 The applicant submitted that the raw materials / inputs on which the treatment / process undertaken by the applicant should qualify as goods . In this regard, they referred to definition of term goods given in section 2(52) of the CGST Act, 2017. They also referred to the definitions of goods given under some of the erstwhile Sales Tax and VAT legislations. It is submitted that in the context of the definition of goods under the Sales Tax and VAT legislations, the Hon ble Supreme Court has examined and ruled on the issue of whether electricity constitutes goods . They referred to the decision of Hon ble Supreme Court in the case of Commissioner of Sales Tax, M.P., Indore Vs. M.P. Electricity Board, Jabalpur [1970 (25) STC 188] and State of Andhra Pradesh Vs. National Thermal Power Corporation Ltd. and Ors. [(2002) 3 SCR 278] and submitted that electricity is in the nature of moveable pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gases by the applicant. Since the owner of the land would own the ambient air above its land, in effect, Essar has provided the same to the applicant in terms of the arrangement (along with electricity, industrial water etc.). In view of both the statutory position as well as the position under the commercial arrangement outlined above, it is clear that the air also belongs to Essar, which is provided to the applicant to undertake the processing activity. Therefore, all the goods used by the applicant for manufacture of industrial gases belong to Essar only, accordingly, condition (c) mentioned above is fulfilled in the present case. 4.6 The applicant submitted that as all the conditions required to be fulfilled by the applicant in order to fit into the definition of the term job work are satisfied, the present transaction would be construed as a job work transaction and the applicant would be considered as a job worker of Essar. 5.1 As regards the valuation, it is submitted that the valuation of the present transaction would be transaction value as determined in accordance with Section 15(1) of the CGST Act, 2017 i.e. the price actually paid or payable when the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further submission vide letter dated 16.11.2017, wherein they referred to clause 4.3.1 and 6.1.4 of the agreement between M/s. Essar and the applicant and submitted that the land is an essential requirement under the agreement for the company to undertake the manufacturing activity and the same is being provided by M/s. Essar to the applicant. They cited various judgments in support of their submission that the owner of land is also the owner of the vertical column of air above the land, and submitted that the transaction between M/s. Essar and the applicant would be construed as a job work transaction and the applicant would be considered as a job worker of M/s. Essar. Further, the GST would be payable only on the job work charges paid by M/s. Essar to the applicant. 8.1 The Central Excise GST, Vadodara I Commissionerate informed that the applicant has entered into a job work agreement with M/s. Essar on 07.02.2014. M/s. Essar is providing necessary goods i.e. Electricity, Industrial quality water to the applicant free of cost. In fact, as per their agreement (Para 4.3.2 Page 25), earlier they were paying Central Excise duty. The gases produced are further captively consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(52) of the CGST Act, 2017. 8.4 Further, as the process undertaken amounts to manufacture, the applicant was registered with the Central Excise department as a manufacturer and discharging Central Excise liability towards clearances to M/s. Essar. Even the clause 2(c) of Schedule 2 of CGST Act, 2017, mandates that any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. 8.5 It is also opined that the applicant is supplying industrial liquid gases to a related party who has given them the input raw materials free of cost and land / place to install plant which are nothing but additional considerations. Therefore, value may be assessed in terms of provisions of Section 15(4) of the CGST Act, 2017 as the value is not the transaction price but there are certain adjustments which are required to be done on account of supply of certain input raw materials free of cost by the buyer and land / place by the buyer. 9. We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched like, for instance, a piece of wood or a book, it cannot cease to be movable property when it has all the attributes of such property. It is needless to repeat that it is capable of abstraction, consumption and use which, if done dishonestly, would attract punishment under s. 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other movable property. Even in Banjamin on Sale, 8th Edn., reference has been made at page 171 to County of Durham Electrical, etc., Co. v Inland Revenue(1) in which electric energy was assumed to be goods . If there can be sale and purchase of electric energy like any other movable object we see no difficulty in holding that electric energy was intended to be covered by the definition of goods in the two Acts. The applicant has submitted that similar view has been adopted by the Hon ble Supreme Court of India in the case of State of Andhra Pradesh Vs. National Thermal Power Corporation Ltd. and Ors. [(2002) 3 SCR 278]. Thus, in view of the aforesaid decisions, we find that it is a settled position of law that Electricity is goods. 11.3 Therefore, Atmospheric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by ESSAR to INOXAP, free of charge, as per technical specifications set forth in clause 12 of Schedule I ( Inputs ). The Parties agree that INOXAP shall not be able to perform its obligations in relation to the Manufacturing Activity or generation of the Guaranteed Quantity (which obligations are contingent upon supply of the Inputs) under this Agreement unless the INOXAP Facility receives uninterrupted availability / accessibility, as applicable, of/to each of the inputs. 4.1.2 ESSAR agrees to provide to INOXAP the Inputs (free of charge) at the INOXAP Facility to enable INOXAP to meet its obligations in relation to the Manufacturing Activity and to generate the Guaranteed Quantity (which obligations are contingent upon supply of the Inputs) under this Agreement. For the avoidance of doubt, the Parties agree that ESSAR shall at all times during the Term continue to provide the auxiliary power (free of charge) in accordance with Clause 12.1.3 of Schedule 1 at the INOXAP Facility. 13.3 As regards Atmospheric Air, which required for manufacturing industrial gases viz. Oxygen, Nitrogen and Argon, there is no reference in the agreement. In this regard, the applicant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial gases viz. Oxygen, Nitrogen and Argon by the applicant amounts to Job Work as defined under Section 2(68) of the said Acts. 14.2 Even at clause 3.1.1 of the agreement entered into between M/s. Essar and the applicant, it is mentioned that ESSAR hereby appoints INOXAP, on job work basis , to undertake manufacturing of the Products at the INOXAP Facility for the Steel Plant as per the terms of this Agreement ( Manufacturing Activity ). 14.3 The applicant has submitted that under the pre-GST regime, they were duly discharging excise duty on the gases supplied to M/s. Essar at the time of their removal from the Applicant s premises. Since the applicant was acting as a job worker for M/s. Essar, the valuation was carried out as the Rule 10A read with Rule 8 of the Central Excise Valuation Rules, 2000. The said Rule 10A read as follows :- RULE 10A . Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, - (i) .. (ii) .. (iii) .. Provided that .. Explanation . - For the purposes of this rule, job-worker means a person eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. 15.2 The applicant and M/s. Essar are not related persons as defined under Explanation (a) and (c) of Section 15 of the said Acts. 15.3 Further, the computation of Job Work Charges has been described at clause 6 of the agreement entered into between the applicant and M/s. Essar. The Job Work charge agreed by the applicant and M/s. Essar is the sole consideration payable by M/s. Essar to the applicant for the agreed activity to be carried out by the applicant. 15.4 Therefore, the value of supply by the applicant shall be the transaction value, which is the price actually paid or payable for the said supply as Job Charges, in view of sub-section (1) of Section 15 of the said Acts. 16. In view of the foregoing, we rule as under RULING (a) The activity undertaken by the applicant falls under the Job Work as defined under Section 2(68) of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017. (b) The app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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