2022 (3) TMI 485 - AAR - GST

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

In Re: M/s. IOCL,

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. ... Classification of services - Job-Work or not - sending of Naphtha, DM water, Power, Cooling water, service water and instrument air by the Applicant to Praxair and receiving back of Hydrogen gas. Nitrogen gas and HP steam - section 2(68) of Central Goods and Service Tax Act,2017 (CGST Act) and Odisha Goods and Service Tax Act, 2017 (OGST Act) - Whether all the payments under the contract will attract GST as applicable to Job Work? - HELD THAT:- The production 'Plant' has been leased to the applicant (M/s IOCL, Paradip in the instant case) on a monthly rent basis. The physical and peaceful possession of the production plant has been handed over to the applicant and for that the applicant is paying Lease/Rental and O&M charges to M/s Praxair. The Plant is no more under the control and possession of M/s Praxair. Therefore, the applicant's claim that M/s Praxair uses its Plant to produce Hydrogen and Nitrogen Gas by using the inputs provided by the applicant may not be correct. Admittedly, M/s Praxair is manufacturing industrial gases out of the raw material supplied by the applicant and the gases so manufactured are exclusively used by the applicant - but there is no specific job work agreement between the applicant and M/s Praxair. No job works charges or any processing/conversion charges of inputs has been claimed by M/s Praxair as evident from the invoices raised to the applicant. Further, the manufacturing of gases is not being done at M/s Praxair's ' production plant'. Therefore, the concept of 'Job Work' is not present in the entire transaction. The activities being undertaken in the applicant's premises/production plant do not qualify for 'Job Work' under section 2(68) of Central Goods and Service Tax Act.2017 (CGST Act) and Odisha Goods and Service Tax Act, 2017 (OGST Act) and Section 143 of the said Acts - the applicant's next question “Whether all the payments under the contract will attract GST as applicable to Job Work?” is not maintainable. 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.