2018 (6) TMI 518 – AUTHORITY FOR ADVANCE RULINGS, GUJARAT – 2018 (14) G. S. T. L. 147 (A. A. R. – GST), [2018] 2 GSTL (AAR) 96 (AAR) – Job-work or not? – Activity of manufacturing industrial gases viz. Oxygen, Nitrogen and Argon – transition to GST regime – Valuation – related party transaction or not? – Whether the activity undertaken by the applicant amounts to “Job Work” as defined under Section 2(68) of the Central Goods and Services Tax Act, 2017? – What is the value on which the applicant is liable to pay GST?
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Held that:- It is clear that the Atmospheric Air used by the applicant belongs to M/s. Essar. Thus, all the inputs viz. Atmospheric Air, Industrial Water and Electricity belongs to M/s. Essar – As all the necessary ingredients of the definition of ‘job work’ are fulfilled in this case, the activity of manufacturing of industrial gases viz. Oxygen, Nitrogen and Argon by the applicant amounts to ‘Job Work’ as defined under Section 2(68) of the said Acts – it is eviden
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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.
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Ruling:- 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 – The applicant is liable to pay Goods and Services Tax on the value of supply determined under Section 15(1) of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017. – Advance Ruling No. GUJ/GAAR/R/2018/7 (In Application No. Advance Ruling/SGST&CGST/2017-18/AR/16) Dated:- 21-3-2018 – Mr. R.B. Mankodi, Member And Mr. G.C. Jain, Member For The Applicant : Shri Rohit Jain, Advocate RULING The applicant M/s. INOX Air Products Private Limited (herein a
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city and industrial water remains with M/s. Essar and M/s. Essar is also the owner of the gases manufactured by the applicant using the said electricity and water. 2.2 It is submitted that the gases so produced are further captively consumed by M/s. Essar in its steel manufacturing operations. In order to ensure continuous availability of the gases, the applicant s gas plant is located at a designated land within the premises of the Steel Plant. The applicant has obtained a separate GST registration for this premises. 2.3 The mechanics of the transaction and consideration payable by M/s. Essar to the applicant for the manufacture and supply of gases is as follows :- a. The applicant will 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 bet
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ant was acting as a job worker for Essar, the valuation was carried out as per Rule 10A of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000 (herein after referred to as the Central Excise Valuation Rules, 2000 ). Further, since the gases were captively consumed by M/s. Essar, Rule 8 of Valuation Rules was also pertinent, which mandated the payment of Central Excise Duty on the cost of manufacturing plus a ten per cent mark-up. In light of Rule 10A read with Rule 8 of the Valuation Rules, the applicant discharged the Central Excise Duty on an assessable value comprising of the following: (a) Job Work Charges payable by Essar to applicant; (b) The value of electricity and industrial water provided by Essar; (c) Notional rent for the designated land; (d) Escalation on account of WPI / CPI Plus a ten per cent mark-up on the aforesaid. 2.5 In view of the above, the applicant raised following issues for determination before this authority :- (i) Whether the activity
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he applicant uses its air separation plant to separate the Oxygen, Nitrogen and Argon by liquefying and separating the atmospheric air. Accordingly, it is pertinent to note that activity of manufacture of gases by Air Separation Unit ( ASU ) requires 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 clause
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gases by the applicant. The said inputs are processed by the applicant for manufacturing the industrial gases by employing its plant and personnel, and the applicant has no rights whatsoever to the resultant gases. It is submitted that in view of the commercial arrangement outlined above, the activity undertaken by the applicant on behalf of M/s. Essar is clearly a job work activity. 4.2 It is submitted that from the provisions of the CGST Act, 2017, there are three essential requirements to be fulfilled by the applicant in the present case to term the present transaction as job work, namely : (a) The activity undertaken by the company should qualify as a treatment or process , (b) The treatment or process undertaken should be on goods i.e. the raw materials/ inputs involved in the present cases should fall within the ambit of term goods, (c) The goods should belong to Essar . 4.3 The applicant submitted that as the terms treatment or process have not been defined under the GST laws, r
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resent 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 moveabl
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r as the payment for procurement of the same to the Government authorities is also done by M/s. Essar only. Further, this is also evident on perusal of clause 4 of the Agreement. As regards the Air used by the applicant for manufacture of the industrial gases, they submitted that the following aspects need to be examined to conclude on the issue of ownership of the air viz. (i) statutory position; and (ii) position under the commercial arrangement. They submitted that it is a settled position in law that the owner of land is also the owner of the vertical column of air above the land. This position derives from the Latin maxim cuius est solum, eius est usque ad coelum et ad inferos, and has been legislatively recognized under the Indian Easements Act, 1882 at Section 7 thereof. It is submitted that the said provision clearly states that the ownership of land includes ownership of the air vertically above the land and this principle has also been judicially accepted in a plethora of dec
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led 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 two conditions are satisfied : – The supplier and the recipient of the supply should not be related, and – Price should be the sole consideration for the supply They referred to the decisions in the cases of Commissioner of Central Excise Rajkot Vs. Jai Bharat Steel Industries [2005 (192) ELT 792 (Tri.-Mumbai)], maintained in Supreme Court [2016 (340) ELT A138 (SC)] and Eicher Tractors Ltd. Vs. Commissioner of Customs, Mum
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lly payable or paid and in the present case, the price actually paid or payable is the job work charges, therefore, GST in the present transaction would be payable only on the job work charges paid by M/s. Essar to the applicant. 6. The applicant also submitted that they only process the goods supplied by M/s. Essar to manufacture those goods into industrial gases. The activity of processing applied to another person s goods is a supply of service by virtue of Section 7(1)(d) read with Entry 3 of Schedule II of the CGST Act, 2017 which provides that any treatment or process which is applied to another person s goods is a supply of services . Accordingly, the process undertaken by the applicant in the present case on the goods belonging to M/s. Essar would be considered as a Supply of Service and GST on the said transaction would be payable only on the processing charges collected by the applicant from M/s. Essar. 7.1 The applicant filed further submission vide letter dated 16.11.2017,
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st. 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 consumed by M/s. Essar in its steel manufacturing operations. The applicant s claim that they have obtained a separate GST registration for location at designated land of Essar is not correct as the applicant has mentioned it as their additional place of business and GST Registration s copy has been submitted. 8.2 The definition of job work under Section 2(68) under the CGST Act, 2017 has been referred and it is submitted that the job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person; that the person who is treating or processing the goods belonging to other person is called job worker and the person to whom the goods belong is called principal . 8.3 With respect to the submissions made by the applicant at Para 4.1.2 of the submissions wherein it has been stated that the activit
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goods, supplied by M/s. Essar, on which any treatment or process is undertaken by the applicant to manufacture industrial gases. Therefore, the activity of the applicant does not meet the definition of job work given in the CGST Act, 2017 as it does not involve any treatment or process on goods belonging to another registered person. It is evident that the applicant is involved in an activity which is not job work but manufacture and supply of a completely new item i.e. industrial gases which are goods in terms of section 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 a
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ant amounts to Job Work as defined under Section 2(68) of the CGST Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the GGST Act, 2017 and the CGST Act, 2017 and the GGST Act, 2017 have been collectively referred to as the said Acts ). The term job work has been defined under Section 2(68) of the said Acts as follows :- 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; 10.2 The applicant has submitted that the essential requirements to be fulfilled by them to term the present transaction as job work includes that the treatment or process undertaken should be on goods, and that these goods should belong to Essar. 11.1 The definition of the term goods has been given under Section 2(52) of the said Acts as follows :- goods means every kind of movable property other than money and securities but includes actionable claim, growing
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merely because electric energy is not tangible or cannot be moved or touched 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 In
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has been held that the term processing is a much wider term. In our opinion, the expressions further processing and any other purpose mentioned in Rule 4(5)(a) are fairly wide and would take their colour from the processes mentioned in the definition of input . As such the generation of electricity or steam as intermediate products would fall within the scope of these expressions, and would amount to job work (c) S.B. Sarkar s Word & Phrases of Excise, Customs & Service Tax, 4th Edition : Process means Prepared, handled, treated or produced by a special process (d) Websters Dictionary : Processing means to subject to some special process or treatment; to subject (esp. raw material) to a process of manufacture, development or preparation. 12.3 The applicant carries out activity of manufacturing industrial gases viz. Oxygen, Nitrogen and Argon by undertaking treatment or process on the goods viz. Atmospheric Air and Industrial Water. 13.1 As per the definition of Job Work such tr
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ailability / 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 has submitted that the owner of the land is also the owner of the vertical column of air above the land, which position derives from the Latin maxim cuius est solum, eius est usque ad coelum et ad inferos (Translated : For whoev
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s ownership of the air vertically above the land. This principle has also been judicially accepted in a plethora of decisions. In light of the settled principle of law, the ownership of land extends to the ownership of the air vertically above it. Accordingly, the air (above the land which is owned by ESSAR), clearly belongs to ESSAR. It is also submitted by the applicant that in terms of the arrangement between the parties, M/s. Essar is required to provide land and all other inputs for the processing of gases by INOXAP. Since the owner of the land would own the ambient air above its land, in effect, M/s. Essar has provided the same to INOXAP in terms of the arrangement (along with electricity, industrial water etc.) 13.4 In view of the aforesaid statutory position and commercial arrangement, it is clear that the Atmospheric Air used by the applicant belongs to M/s. Essar. Thus, all the inputs viz. Atmospheric Air, Industrial Water and Electricity belongs to M/s. Essar. 14.1 As all th
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e 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 engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. Thus, it is evident that under the Central Excise regime also, the applicant was discharging duty under Rule 10A of the Central Excise Valuation Rules, 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. 14.4 Therefore, taking all these aspects into consideration, we hold th
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med to be related persons if – (i) such persons are officers or directors of one another s businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or; (viii) they are members of the same family; (b) the term person also includes legal persons; (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
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