TMI Blog2018 (7) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... ork. Whether, given the preposition that the definition of job work under the GST law may include even manufacture, the process of conversion of Coal into electricity by M/s JEL on behalf of M/s JSL is job work by M/s JEL or not? - Held that:- On a harmonious reading of the definition of Job Work and the procedure for the same, it is construed that the principal will send the inputs to the job worker for conducting any treatment/process/ which may, or may not amount to manufacture) and shall bring back the same after completion of job work or otherwise Therefore the goods sent to the job worker should be the Inputs of the Principal here. M/s JSL are proposing to be the Principal, so the Inputs should belong to them. The inputs being utilized by M/s JSL for the manufacture of their final product i.e. Steel are not the same which they intend to send to M/s JEL for undertaking process on the same. Rather they are proposing to procure the steam coal which are inputs for the power plant of M/s JEL, the job worker and Intend to avail the credit of duty on the same which is otherwise not available to M/s JEL as their final product, i.e. electricity, does not fall in the ambit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. JSW Steel Limited ( JSL ), having GST Registration No.27AAAG4323N1ZG 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 proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lts into a distinct commodity and thereby amounting to manufacture. iii. The judgments of the courts, relied upon by the Appellant, in relation to job work under the erstwhile regime have been negated on the premise that all the judgments quoted in the application and the additional written submissions are in the context of input tax credit which is not the issue in the current facts. iv. Since JEL and JSL are related parties, any supplies made between them, even without consideration will be subject to GST. 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. 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- GROUNDS OF APPEAL JOB WORK WIDER IN SCOPE TO ALSO INCLUDE MANUFACTURE The AAR has grossly erred in passing the Impugned Order in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 recognised 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 4. The Appellant submits that in order to evaluate the terms 'job work' and 'manufacture' reference is made to the definition of 'Job Work' and 'Manufacture' under CGST Act- I. Section 2(68) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant wants to place reliance on the FAQ on GST issued by the CBEC updated till January 1, 2018, in which CBEC clarified that the definition under CGST Act is much wider than the one given under the Notification. The copy of the FAQ is enclosed with the Appeal as Exhibit - 5. The relevant extract of the FAQ is reproduced herein: Q1. What is job work? Ans. Job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person. The person who is treating or processing the goods belonging to other person is called 'job worker' and the person to whom the goods belongs is called 'principal'. This definition is much wider than the one given in Notification No. 214/86 - CE dated 23rd March 1986. In the said notification, job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus, the definition of job work itself reflects the change in basic scheme of taxation relating to job work In the proposed GST regime. 10. The Appellant further relies on the clarification issued by CBEC wherein it has been clearly mentioned that job work is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Ltd. vs Union of India (2015 (316) E.LT. 353 (Bom.)) indicating the fact that the job worker can undertake processes which amount to manufacture. The Appellant would also like to refer the decision of Mumbai Bench of Tribunal in Eaton Fluid Power Ltd. V/s Commissioner of C. Ex. Pune (2014 (308) E.L.T. 602 (Tri. - Mumbai)), wherein the Tribunal held that a job work may or may not amount to manufacture, and just because activities undertaken result in a new commodity, it cannot be said that there was no job work involved. The relevant paragraph is reproduced below We observe that there is no dispute by the Revenue on the duty payments made on the finished products, namely, hydraulic power pocks by the appellant which were cleared from the job workers' premises. There is also no allegation of undervaluation of the finished products either in the show cause notice nor any such findings has been recorded in the impugned order. Once the finished product has correctly discharged the liability there cannot be any leakage of revenue. Cenvat credit envisages that duty/tax paid on the input/input services will be available for discharge of duty liability on the finished products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on return of the goods so manufactured to them he takes job charges i.e. manufacturing expenses plus his manufacturing profits. In some cases, the job worker also uses some of materials of his own and includes their cost in the job charge. After job work is done the excisable goods so manufactured may also be delivered to their agents, or buyers as per their instructions. Since the duty of excise is on manufacture of excisable goods, irrespective of whether the manufacturer is owner of the goods or not, the job worker has to pay the duty.... 15. In terms of the said decision, a job worker can undertake manufacture of goods on account of others. The activity continues to qualify as a job work activity even if it amounts to manufacture. 16. Basis the clarifications issued by CBEC and above judgments, it is submitted that the processing activity carried out on inputs owned by another person amounts to job work even if the resultant product is a distinct commodity. ELECTRICITY CAN BE GENERATED ON JOB WORK IS A SETTLED LAW 17. The Appellant submits that it is well settled inter-alia in terms of the below mentioned judgments of the Courts that electricity bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Job Work 20. The Impugned Order has held that the word 'process' used in the definition of job work has to be read narrowly so as to exclude activities resulting in manufacture. The Appellant submits that wherever the intention of the law maker is to give a restricted meaning to words used in the definition, the same is either appropriately stated in the definition itself or in any other relevant section of the Act with specific wording to that effect. It is submitted that the CGST Act and the regulations do not in any form or manner stipulate or contemplate to derive a different meaning for the word 'process' when used for 'job work' and when used in 'manufacture' which clearly indicate that the 'process' is to be read without any restrictive meaning. Reference can be made to the definition of 'mixed supply' under the CGST Act which clearly excludes supplies qualifying as 'composite supply'. The definition of 'mixed supply' as defined under Section 2(74) of the CGST Act is reproduced below - mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The activity contemplated by the definition is 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 its 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 which consists only in 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 material and it need not be a process involving the use of material... 25. 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, it is evident that the activities proposed to be carried out by the Appellant would fall within the ambit of the term 'process' or 'treatment' even though it amounts to manufacture. Reliance on the Decision of Hon'ble Supreme Court in Manganese Ore India Limited v. State of M.P. ((2017) 1 SSC 81 ) is Erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the word 'processing' used in the Explanation is not clear and hence the rule of 'noscitur a sociis' needs to be applied which means that the meaning of the word is to be judged by the company it keeps. In the Explanation, 'processing' is used in conjunction with other words i.e. crushing, treating and transporting and therefore, it was preferred to interpret the said word in the Explanation with reference to the words before and after it i.e. to be understood with the associated words. Further, it was held that the words 'crushing', 'treating' and 'transporting' are words of narrower significance and hence, the word 'processing' used between these words should also be given a narrower significance. 31. The Impugned Order fails to recognize the fact that in the same judgment the Hon'ble Apex Court held that the word 'processing' can have a wider meaning which would also include manufacturing. However, in the context of that case the word 'processing' has to be interpreted as per the Mines Act, 1952 and therefore will be restricted to the sense conveyed by the words 'crushing', 'treati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture of leather goods or foot wear falling under Chapter 42 or 64 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975) respectively; (f) all food and food products falling under Chapters 1 to 22 In the First Schedule to the Customs Tariff Act, 1975 (51of 1975); (g)....; (h) manufacture of clay bricks falling under tariff Item 69010010 In the First Schedule to the Customs Tariff Act, 1975 (51of 1975); (I) manufacture of handicraft goods. 2.5 - (ia) Services by way of job work in relation to- (a) manufacture of umbrella; (b)... 6 - (ii) Services by way of any treatment or process on goods belonging to another person, in relation to (a) ...(c) 2.5 - (iia) Services by way of any treatment or process on goods belonging to another person, in relation to printing of all goods falling under Chapter 48 or 49, which attract CGST @ 6 per cent. 6 - (iii)... 2.5 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s undertaken by a person on goods belonging to the other registered person should not result into distinct manufactured commodity and accordingly concluded that electricity generated by the appellant using the coal supplied by JSL is a different commodity with different name and use, thereby rendering the entire process/activities undertaken by the appellant as manufacture in terms of the definition as provided under Section 2(72) of the CGST Act, 2017. Thus, the process/treatment performed by the appellant on the coal supplied by JSL would not be covered under the Job work. The Appellant's representative, however, differed with the ruling passed by AAR and argued that as per the provision of Section 2(68) of the CGST Act, 2017 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. Thus any process/activity undertaken by a person would qualify as job work if all of the following conditions are fulfilled and consequently the Principal will be allowed to send the goods without payment of tax viz. a. Treatment or process should be undertaken by a person; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Sanghi Ind. Ltd. Vs. CCE, Rajkot (Tri-Delhi) (v) Sanghi Ind. Ltd. Vs. CCE, Rajkot (Tri-Ahmd.) The above four judgements cover instances where goods/materials such as Naphtha, Light Diesel Oil, Furnace Oil etc. were supplied to the job worker for the purpose of generation of electricity The appellant further referred to the following judgements (i) Collector of C.Ex. V/s. Rajasthan State Chemical Works (S.C.) Para 2B - Bharat Petroleum, Pan Parag Also, the representative of the appellant deposed that service codes have been given in the Chapter 99 of GST Tariff - Services and In Section 8, Heading No. 9988 at Sr.No. (iv), the services have been described as manufacturing services on physical inputs (goods) owned by others. During the course of hearing, when being asked about the present system for supply of electricity to their manufacturing units and whether they have any captive coal-run power plant in their manufacturing units for generation and supply of electricity, the appellant's representative deposed that they would be making further submissions in this case regarding the current power supply arrangement to M/s. JSL and whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltimate goods i.e. electricity will be supplied back to the 'Principal' and not the inputs which have been treated upon or processed upon by the Job worker. In other words, the 'Job worker' is receiving tangible goods in the form of coal and supplying 'intangible' goods in the form of electricity. Thus, the inputs which are being sent to the appellant by JSL are being received in completely different form and character, i.e. the essence of the coal i.e the input has been completely lost. He further deposed that the coal neither being the raw material for the manufacture of steel or steel products by M/s. JSL nor being used as inputs for generation of electricity in the in-house coal fired power plant for captive consumption as discussed above does not qualify to be 'goods' for furtherance of business of M/s. JSL and hence cannot be supplied to M/s. JEL on the Job work basis. 39. As per the deposition made before the appellate authority during the hearing dated 19.06.2018, the appellant vide their letter dated 22.06.2018 made further additional submissions which are as under: (1) The appellant inter-alia submitted that the Power Plant owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that even in the context of erstwhile definition of inputs, coal or any other inputs for generation of electricity (which is further used to manufacture an entirely different products) have been held to qualify as inputs for over two decades. (9) In para 6.5, they inter-alia submitted that resultant intermediate goods may be different from the inputs sent by the Principal. For this, they cited following court judgment where job work has been accepted even when the identity of the inputs have been lost, when the intermediary goods are received back from the job worker. (a) Prestige Engineering (India) Ltd. V/s. Collector of C.Ex. Meerut, [1994 (73) E.L.T. 497 (S.C.)] (b) Appellate Collector of C.Ex. V/s. Wadpack Pvt. Ltd. [1997 (89) E.L.T. 24 (S.C.)] (c) Emcee Crown Corks (P) Ltd. V/s. Commissioner of C.Ex. Bangalore [2002(149) E.L.T. 639(Tri.- Bang.) (d) Bharat Commerce and Industries Ltd. V/s. Collector [1997 (94) E.L.T. A136] Discussions 40. We have heard both the parties and gone through the submissions made by them. The Issue before us is to decide whether the activity undertaken by M/s JEL on behalf of M/s JSL is job work or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work involved manufacturing and credit of duty was allowed even in respect of the inputs utilized in manufacture of intermediate goods used in the manufacture of final product. In this case, M/s. JSL are manufacture of Steel and steel products and M/s JEL are engaged in production of electricity, using coal as main input we have gone through the citations and note that in none of these the central issue of decision was on the subject of JOB WORK- All these judgments pertain to the admissibility of the Cenvat/Modvat credit on the goods utilized for manufacture of intermediate goods, which is not the case here. The Applicant had not gone before the AAR on issue of admissibility of credit of tax paid on the inputs. The impugned application pertains to the consideration of activity as Job work, and we would be restrict ourselves to the issue involved. 45. In order to elaborate further, we reproduce the definition of 'Job Work' under CGST/MGST Act as under: 'Job work means any treatment or process undertaken by a person on goods belonging to another registered person' From the above definition, it is clear that job work involves (i) two persons, (ii) goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent types, and that the Coal imported by M/s JSL Is coking coal and has a different usages compared to steam coal, being used by power plants for generation of electricity which is much cheaper as well. This shows that the inputs being utilized by M/s JSL for the manufacture of their final product i.e. Steel are not the same which they intend to send to M/s JEL for undertaking process on the same. Rather they are proposing to procure the steam coal which are inputs for the power plant of M/s JEL, the job worker and Intend to avail the credit of duty on the same which is otherwise not available to M/s JEL as their final product, i.e. electricity, does not fall in the ambit of the GST law. 47. Assuming that the steam coal is also an input for M/s JSL as the same is utilized in the manufacture of Electricity which is finally used In the manufacture of final products of M/s JSL, the question arises how the requirements of Section 143 are met with regard to bringing back the Inputs after process/treatment on the inputs, as the inputs in this case are consumed in making electricity. 48. Further, we find from the details of the permissions received from Maharashtra State Electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b work involved In different Civil Appeals has been discussed. The observations and judgment of the Apex Court are relevant as below. 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 ah activity would amount to job work. 51. In para 17 of the said judgment, Hon'ble Court has explained the definition of Job work which is reproduced below- Now, what does the expression 'job work' mean? On this question, the Explanation is not of much assistance. The Concise Oxford Dictionary assigns several meanings to the expression job' but the relevant meaning having regard to the present context is a piece of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the principal to carry out the job work process. (ii) The detail manufacturing process of M/s JEL for production of Electricity mentioning the name, quantity and value of the inputs. (iii) The procedure/process for accounting for the Inputs received from M/s JSL by M/s JEL and co-relation thereof with the goods supplied after job work. Though it is not possible to ascertain the quantity and value of the material being utilized by the job worker in the conversion of coal provided by the principal into electricity accurately in absence of facts before us, it can nevertheless be seen from the details provided by the appellant that coal is not the only input used for the production of electricity. There is large quantity of water and air being uitilized in the process. The other materials being used by the job worker are not minor solutions to the Inputs and all Inputs are not provided by the principal. Accordingly It Is seen that the process cannot be considered as Job work following the ratio of the above judgment. 53. To elaborate further, in para 19 of the said judgment, it is observed as below: Now, let us look at the process involved in this appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various issues are not of much help to them on following grounds: (i) None of the said judgments are under the statute in which the Advance Ruling was sought and appeal was preferred against the said Ruling. (ii) None of the judgments involved any decision about any activity to be job work or not, except in the matter of M/s Prestige Engineering(lndia) Ltd. (iii) The facts and circumstances of the cases cited by the appellant were different from the facts of the instant case. 55. We would also like to distinguish the said judgments as under: (i) Essar Steel Ltd. v/s Commissioner of C. Ex. Surat-I, 2001(129) ELT 213(Tri. Mum.): The issue in the above case was an interpretation of the term 'within the factory of production'. There is no such clause for interpretation in the present case and therefore the case has no relevance here. Also, entire electricity generated by M/s EPL, a subsidiary of M/s Essar Steel Ltd and adjacent to steel mill, was transmitted through the steel plant and after utilization of the some of it, remaining electricity was transmitted to the grid of Gujarat State Electricity Board. So, there was no regulation or thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed on the basis that the products are supplied to job worker namely the power plant. So as such the issue was of admissibility of credit. Also the definition of 'input' during the relevant time covered goods used in fuel or for generation of electricity, which was the basis on which the judgement was given, as is clearly evident from Paragraph 22 of the order. Also, as per para 2 of the said judgment-- The principal raw material for manufacture of petrochemical products is Naphtha which is procured from India Oil Corporation or other indigenous oil refineries or by direct import from overseas on payment of duty. A small portion of the Naphtha, either as such, or after being partially processed, is also sent to a power plant for generation of electricity or steam . In the instant case, the goods proposed to be sent for job work(Steam Coal) are not the raw material of the Principal. (v) SANGHI INDUSTRIES 2006 (206) ELT 575 ( Tri Del) / SANGHI INDUSTRIES ( 2014 302 ELT 564) The issue whether the power plant was a job worker or not was not presented before the Tribunal for adjudication. The issue was of admissibility of credit. Also as in the case of Vikram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter processing the same by job worker) under Section 143(1)(a) without being regulated by a third party? (iii) What are the other inputs/materials, their quantity and value, being procured/purchased by the job worker, M/s JEL, which need to be added to the inputs supplied by the Principal for converting the same into electricity, as the Principal is not supplying all the inputs and in terms of the Judgment of Apex Court, as referred above, the job worker can not make substantial addition to the inputs of the Principal to qualify for the process as job work. In light of above, we have no doubt to conclude that the activity undertaken by M/s JEL to convert Coal, to be supplied by M/s JSL, in electricity is not covered under the definition of Job work in terms of the CGST Act. Since goods supplied by M/s JSL will be utilized by M/s JEL in manufacture of new commodity i.e. electricity (though attracting NIL rate of duty), the process is manufacture and the same will be considered as supply of goods and not service. 57. Accordingly, we pass the following order: ORDER In view of the above discussions and in terms of Section 101(1) of the CGST Act 2017 and MG ..... X X X X Extracts X X X X X X X X Extracts X X X X
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