2018 (5) TMI 763 - AAR - GST

GST Applicable on Power Supply between Related Parties: AAR Ruling

The Authority for Advance Rulings (AAR) determined that GST is applicable on the supply of power by JEL to JSL as the conversion of coal into electricity ... Job work - treatment or process - manufacture - supply - related persons - Schedule I - supplies between related persons treated as supply even if without considerationAdvance ruling - supply by the applicant - Ruling on the applicability of GST to supply of coal or inputs from JSL to JEL is not entertained by the Authority - HELD THAT: - Section 95 contemplates that an advance ruling relates to a supply 'being undertaken or proposed to be undertaken by the applicant.' The question on supply of coal or other inputs concerns supply by JSL and not by JEL, the applicant before the Authority. The applicant conceded at the hearing that this question could not be entertained by the Advance Ruling Authority for that reason. Accordingly the Authority declined to entertain the question on supply of coal/inputs by JSL to JEL.Question on applicability of GST to supply of coal or inputs by JSL to JEL is not entertained.Job work - treatment or process - manufacture - supply - related persons - Schedule I - supplies between related persons treated as supply even if without consideration - Whether supply of electricity by JEL to JSL is a taxable supply - HELD THAT: - The Authority examined whether the activities by JEL on coal supplied by JSL fall within the definition of 'job work' (a 'treatment or process' on another's goods) or amount to manufacture. The Authority adopted the distinction that 'treatment' or 'process' for job work does not extend to activities resulting in a distinct new commodity. Applying the reasoning in Manganese Ore India Ltd. (as discussed in the order), where 'processing' must be read in a restricted sense and not to include creation of a different commodity, the conversion of coal into electricity results in a new product having distinct name, character and use and therefore amounts to 'manufacture' as defined in the GST Act. Consequently the activity is not within the scope of 'job work.' Further, JEL and JSL are related persons and para 2 of Schedule I treats supplies between related persons in the course or furtherance of business as 'supply' even if made without consideration. On that basis the supply of power by JEL to JSL is a supply liable to GST.Supply of electricity by JEL to JSL is a taxable supply; the activity constitutes manufacture and is not job work.Job work charges - transaction of supply - job work - Whether job work charges payable to JEL by JSL are subject to GST as job work services - HELD THAT: - Having held that the activity undertaken by JEL (conversion of coal into electricity) amounts to manufacture and not to job work, the characterization of any consideration as 'job work charges' does not survive. The question premised on the transaction being job work therefore falls away. The Authority accordingly did not proceed to treat the claimed charges as job-work services.Question on GST applicability to job work charges does not survive because the transaction is a supply (manufacture) and not job work.Final Conclusion: The Authority declined to entertain the question on supply of coal/inputs by JSL to JEL (not raised by the applicant). It held that JEL's conversion of coal into electricity is manufacture, not job work, and that supply of electricity by JEL to related party JSL is a taxable supply under the GST Act; the contention framed as 'job work charges' therefore does not survive. Issues Involved:1. Applicability of GST on supply of coal or any other inputs on a job work basis by JSL to JEL.2. Applicability of GST on supply of power by JEL to JSL.3. Applicability of GST on job work charges payable to JEL by JSL.Issue-wise Detailed Analysis:1. Applicability of GST on Supply of Coal or Any Other Inputs on a Job Work Basis by JSL to JEL:The Authority for Advance Rulings (AAR) noted that the question pertains to the supply by JSL and not JEL, the applicant. As per Section 95 of the GST Act, an advance ruling must relate to the supply of goods or services undertaken or proposed to be undertaken by the applicant. Therefore, this question was not entertained by the AAR.2. Applicability of GST on Supply of Power by JEL to JSL:The AAR examined whether the conversion of coal into electricity by JEL could be classified as a job work. The definition of 'job work' under Section 2(68) of the CGST Act involves undertaking any treatment or process on goods belonging to another registered person. The AAR found that the conversion of coal into electricity results in a new product, which falls under the definition of 'manufacture' as per Section 2(72) of the CGST Act. The transformation from coal to electricity is a complete change in the identity of the goods, thus not qualifying as a job work. As JSL and JEL are related persons, the supply of power by JEL to JSL is treated as a supply under Schedule I of the CGST Act, even if made without consideration. Therefore, GST is applicable on the supply of power by JEL to JSL.3. Applicability of GST on Job Work Charges Payable to JEL by JSL:Given that the transaction between JEL and JSL is classified as a supply of goods (electricity) and not a job work, the question of GST on job work charges does not survive. The AAR concluded that the activity undertaken by JEL amounts to the manufacture of electricity from coal, and thus, the charges payable by JSL to JEL are for the supply of goods, not job work services.Order:1. The question regarding the applicability of GST on the supply of coal or any other inputs on a job work basis by JSL to JEL was not entertained as it pertains to the supply by JSL.2. GST is applicable on the supply of power by JEL to JSL.3. The transaction between JEL and JSL is a supply of goods and not a job work; hence, the question of GST on job work charges does not survive.