Manufacturing at leased premises with raw materials doesn't qualify as job work under section 2(68) CGST Act

AAR Odisha held that the transaction between the applicant and contractor did not constitute job work under section 2(68) of CGST Act and OGST Act 2017. The production plant was leased to the applicant on monthly rent basis with physical possession transferred. The contractor manufactured industrial gases using applicant's raw materials but operated from applicant's premises under lease arrangement. Since no specific job work agreement existed, no processing charges were claimed, and manufacturing occurred at applicant's plant rather than contractor's facility, the transaction failed to meet job work criteria under section 143. Consequently, GST treatment applicable to job work was not maintainable for payments under the contract.

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Issues Involved:
1. Whether the transaction between the Applicant and Praxair qualifies as 'job work' under Section 2(68) of the CGST Act and OGST Act.
2. Whether all the payments under the contract will attract GST as applicable to Job Work.

Issue-wise Detailed Analysis:

1. Qualification of Transaction as 'Job Work':

Applicant's Submission:
- The Applicant, a Government of India undertaking, operates an oil refinery in Odisha and requires industrial gases for its refining activities.
- The Applicant entered into a contract with Praxair for the installation, lease, operation, and maintenance of Hydrogen and Nitrogen plants within its premises.
- Under this contract, the Applicant supplies raw materials (Naphtha, DM water, Power, Cooling water, service water, instrument air) to Praxair, which processes these inputs to produce industrial gases (Hydrogen gas, Nitrogen gas, HP steam) and returns them to the Applicant.
- The Applicant argues that this activity falls under 'job work' as defined in Section 2(68) of the CGST Act and OGST Act, which includes any treatment or process undertaken by a person on goods belonging to another registered person.
- The Applicant asserts that all conditions for 'job work' are satisfied: treatment or process on goods, goods owned by the principal, goods brought back within one year, and goods qualify as 'inputs'.

Authority's Findings:
- The Authority reviewed the submissions, personal hearing arguments, and relevant documents, including the lease agreement and sample invoices.
- It was noted that the production plant was leased to the Applicant, and Praxair was charging lease/rental and operation & maintenance (O&M) charges, not job work charges.
- The physical possession of the plant was with the Applicant, and Praxair did not retain control over the plant.
- The Authority concluded that the transaction did not involve job work since there was no specific job work agreement, and Praxair did not charge for job work or processing/conversion of inputs.
- The cited judgments (Inox Air Products and Bharat Petroleum Corporation Ltd) were found not applicable as the facts differed from the present case.

Ruling:
- The activities undertaken in the Applicant's premises do not qualify as 'job work' under Section 2(68) of the CGST Act and OGST Act.

2. Applicability of GST on Payments under the Contract:

Applicant's Submission:
- The Applicant sought clarification on whether all payments under the contract would attract GST as applicable to job work.

Authority's Findings:
- Since the primary question regarding the qualification of the transaction as 'job work' was answered in the negative, the second question became non-maintainable.

Ruling:
- The question regarding the applicability of GST on payments under the contract as job work is not maintainable due to the ruling that the transaction does not qualify as job work.

Conclusion:
- The ruling is valid subject to the provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.

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