2018 (6) TMI 518 - AAR - GST

Interpretation of 'Job Work' under Central Goods and Services Tax Act

In Re : M/s. Inox Air Products Pvt. Ltd.

The case involved determining whether the activities of the applicant constituted 'Job Work' under the Central Goods and Services Tax Act, 2017. The ... 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? 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 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. 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 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. Issues Involved:1. 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 (CGST Act, 2017).2. What is the value on which the applicant is liable to pay GSTRs.Detailed Analysis:Issue 1: Whether the activity undertaken by the applicant amounts to 'Job Work' as defined under Section 2(68) of the CGST Act, 2017.Applicant's Arguments:- The applicant, INOX Air Products Private Limited (INOXAP), is engaged in manufacturing industrial gases for Essar Steel India Limited (Essar) under a Job Work Agreement.- Essar provides necessary inputs such as electricity and industrial water free of cost, and retains ownership of these inputs and the resultant gases.- The applicant argues that their activity qualifies as job work under Section 2(68) of the CGST Act, 2017, which defines job work as 'any treatment or process undertaken by a person on goods belonging to another registered person.'- The applicant cited various legal precedents and dictionary definitions to argue that the activities of separating air into gases qualify as a 'process' or 'treatment.'- They also argued that the inputs (electricity, water, and air) qualify as 'goods' under Section 2(52) of the CGST Act, 2017.Department's Arguments:- The Central Excise & GST, Vadodara – I Commissionerate contended that the atmospheric air, being the main input, does not belong to Essar and therefore does not meet the definition of job work.- They argued that the applicant's activity amounts to manufacturing and supplying new goods, not job work.Ruling:- The authority examined the definitions and legal precedents cited by the applicant.- It was determined that atmospheric air, industrial water, and electricity qualify as goods under Section 2(52) of the CGST Act, 2017.- The ownership of land extends to the ownership of the air vertically above it, hence the atmospheric air used by the applicant belongs to Essar.- The agreement clauses and statutory provisions confirmed that the inputs provided by Essar are indeed goods belonging to Essar.- Therefore, the activities undertaken by the applicant qualify as job work under Section 2(68) of the CGST Act, 2017.Issue 2: What is the value on which the applicant is liable to pay GSTRs.Applicant's Arguments:- The applicant argued that the value of the supply should be determined as per Section 15(1) of the CGST Act, 2017, which is the transaction value or the price actually paid or payable.- They contended that the job work charges are the sole consideration for the supply, and therefore, GST should be payable only on these charges.Department's Arguments:- The department suggested that the value should include additional considerations such as the free-of-cost inputs provided by Essar.Ruling:- The authority noted that the applicant and Essar are not related persons under the CGST Act, 2017.- The job work charges agreed upon in the contract are the sole consideration for the supply.- Therefore, the value of the supply is the transaction value, i.e., the job work charges, as per Section 15(1) of the CGST Act, 2017.Conclusion:- The activity undertaken by the applicant falls under the definition of 'Job Work' as per Section 2(68) of the CGST Act, 2017.- The applicant is liable to pay GST on the job work charges as determined under Section 15(1) of the CGST Act, 2017.