2022 (12) TMI 193 - AAAR - GST

Company's lease agreement for industrial gas processing fails job work criteria under Section 2(68) CGST Act

The AAAR, Odisha upheld the lower authority's ruling that the transaction between the appellant and a private company did not qualify as job work under ... Qualification of activity as 'job work' under the meaning of 'job work' under section 2(68) of the CGST Act - control and possession of production plant - lease agreement/Build-Own-Operate (BOO) arrangement - operation and maintenance charges and invoicing - absence of specific job work agreement and job work charges in invoicesQualification of activity as 'job work' under the meaning of 'job work' under section 2(68) of the CGST Act - control and possession of production plant - lease agreement/Build-Own-Operate (BOO) arrangement - absence of specific job work agreement and job work charges in invoices - The operations carried out by M/s Praxair for manufacture of industrial gases at the plant within the appellant's refinery do not qualify as 'job work'. - HELD THAT: - On examination of the lease and O&M agreements for the hydrogen and nitrogen plants, the Appellate Authority found that the production plant was demised to the lessee (the appellant) for a period of 15 years and vacant physical and peaceful possession was handed over to the lessee. The contractor (Praxair) performed operation and maintenance under the specific control of the appellant and the contracts did not evidence separate job work agreements or invoicing of job work charges. The Authority contrasted the present facts with earlier AAR decisions relied upon by the appellant, noting that those cases involved express job work agreements and invoices reflecting job work charges; such features are absent here. In view of the lease of the plant and absence of contractual and invoicing elements characteristic of job work, the activity was held to be a lease/O&M arrangement and not job work within the statutory concept adopted by the Authority. [Paras 6]The activity is not 'job work' and is a lease/O&M arrangement where Praxair has no control and possession indicative of a job work relationship.Operation and maintenance charges and invoicing - absence of specific job work agreement and job work charges in invoices - The question whether payments under the contract will attract GST as applicable to job work is not maintainable in view of the finding that the activity is not job work. - HELD THAT: - The AAR had declined to treat the transactions as job work and accordingly treated the subsidiary question on applicability of GST as applicable to job work as not maintainable. The Appellate Authority agreed with that approach: because there is no job work relationship on the facts and no invoiced job work charges, there is no basis to treat the payments as consideration for job work services subject to the job work tax treatment. [Paras 3, 6]The subsidiary question on GST applicability as job work is not maintainable and does not arise once the activity is held not to be job work.Final Conclusion: The Appellate Authority for Advance Ruling confirms and upholds the Odisha AAR order No. 03/ODISHA-AAR/2021-22 dated 15-12-2021 and dismisses the appeal of M/s Indian Oil Corporation Limited; the transactions are not 'job work' and the question of GST as applicable to job work does not arise. Issues Involved:1. Whether the transaction qualifies as 'job work' under Section 2(68) of the CGST Act, 2017 and OGST Act, 2017.2. Whether all payments under the lease agreement attract GST as applicable to job work.Detailed Analysis:Issue 1: Qualification as 'Job Work'The primary issue is whether sending inputs (Naphtha, DM water, Power, Cooling water, service water, and instrument air) by the Appellant to M/s. Praxair India Private Limited and receiving back industrial gases (Hydrogen gas, Nitrogen gas, and HP steam) under the lease agreement qualifies as 'job work' under Section 2(68) of the CGST Act, 2017 and OGST Act, 2017.Findings:- The plant is leased to the Appellant for 15 years, indicating that it is not under the control and possession of M/s. Praxair India Private Limited.- There is no specific job work agreement between the Appellant and M/s. Praxair India Pvt Ltd.- No job work charges or processing/conversion charges of inputs have been claimed by M/s. Praxair, as evident from the invoices raised to the Appellant.- M/s. Praxair raises six invoices each month for the service rendered under the agreement, categorized into fixed lease charges, fixed operation & maintenance charges, and variable operation & maintenance charges.Conclusion:The activities undertaken in the Appellant's premises/production plant do not qualify for 'Job work' under Section 2(68) of the CGST Act, 2017 and OGST Act, 2017. The agreement between the Appellant and M/s. Praxair is a simple lease agreement where M/s. Praxair has no control and possession over the place where the inputs supplied by the Appellant are processed.Issue 2: GST Applicability on PaymentsThe secondary issue is whether all the payments under the lease agreement attract GST as applicable to job work.Findings:- Since the transaction does not qualify as 'job work,' the question of whether payments under the contract attract GST as applicable to job work is not maintainable.- The Appellant's claim that the agreement is a job work agreement is not supported by the facts, as there is no job work agreement or job work charges mentioned in the invoices.Conclusion:The payments made by the Appellant to M/s. Praxair under the lease agreement do not attract GST as applicable to job work, as the transaction does not qualify as 'job work.'Final Order:The Appellate Authority confirms and upholds the order of the Odisha Advance Ruling Authority, issued vide order No. 03/ODISHA-AAR/2021-22 dated 15-12-2021, and disallows the appeal of the Appellant, M/s Indian Oil Corporation Limited, Paradip Refinery, Jagatsinghpur, Odisha.