Conversion of shafts into sugar mill rollers deemed "supply of goods" for GST, cost included in value.

The activity of converting bare shafts/beams into ready-to-use sugar mill rollers using the applicant's raw materials is classified as a "supply of goods" rather than a service. The cost of the shaft/beam supplied by the customer must be included in the value of the supply for GST payment purposes. This decision was based on the substantial transformation of materials and the nature of the process involved, as determined by the Authority.

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Issues Involved:
1. Whether the activity of converting bare shafts/beams supplied by the customer into ready-to-use sugar mill rollers using one’s own raw material is treatable as supply of goods or supply of service.
2. Whether the cost of shaft/beam supplied by the customer is includible in the value of the said supply for the purpose of payment of GST.

Issue-wise Detailed Analysis:

Issue 1: Nature of Supply (Goods vs. Services)
The applicant, engaged in manufacturing sugar mill rollers, receives worn-out rollers or bare shafts from customers and converts them into ready-to-use rollers using their own raw materials, skill, and labor. This process involves:
- Breaking the worn-out roller shell.
- Inspecting and re-melting the metal.
- Recasting the shell and mounting it on the shaft.
- Machining operations to create grooves and fitting accessories.

Historically, this activity was classified as a service under the GST regime, with the applicant paying GST on the agreed charges. However, the applicant now seeks clarification on whether this activity should be considered a supply of goods or services.

The Authority examined whether the activity could be classified as "job work" under Section 2(68) of the GST Act, which involves treatment or processing of goods belonging to another registered person. The key factors considered were:
- The applicant uses significant amounts of their own raw material.
- The final product (a new sugar mill roller) is substantially different from the input materials.

Referring to the Supreme Court judgment in the case of M/s. Prestige Engineering (India) vs. Collr. of Central Excise, where substantial addition of materials by the job worker was not considered job work, the Authority concluded that the applicant’s activity is not job work. Instead, it constitutes the manufacture and supply of a new commodity, i.e., a ready-to-use sugar mill roller. Therefore, the activity is classified as a "supply of goods."

Issue 2: Inclusion of Cost of Shaft/Beam in Value of Supply
The second issue pertains to whether the cost of the shaft/beam supplied by the customer should be included in the value of the supply for GST purposes. The applicant argued that the value of the shaft/beam should be considered additional consideration under Section 15(1) of the CGST Act, 2017, read with Rule 27 of the CGST Rules, 2017.

Section 15(1) states that the value of a supply includes the transaction value, which is the price paid or payable when the supplier and recipient are not related, and the price is the sole consideration. Since the price is not the sole consideration in this case, Rule 27 applies, which includes the open market value of the supply or the sum total of consideration in money and any additional consideration not in money.

The Authority observed that the applicant receives the shafts/beams under Rule 55 challans with declared values. Following Rule 27(b), the declared value of these shafts/beams should be included in the value of the supply of the ready-to-use sugar mill roller for GST purposes.

Conclusion:
1. The activity of converting bare shafts/beams supplied by the customer into ready-to-use sugar mill rollers using the applicant’s own raw material is classified as a "supply of goods."
2. The cost of the shaft/beam supplied by the customer is includible in the value of the said supply for the purpose of payment of GST.

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