HSD issued to Contractor on Job work

[Prem Choudhary]

Dear Expert

please advice tax applicability on following transactions, one of my client are issuing HSD to Contractors in specified Job Work and booked HSD in consumption(Cost) and in Contract has specified factor for calculation standard Consumption .If any excess or short issued of HSD with standard factor of Consumption of HSD ,the amount will be deducted or paid to the Contractor.

We are know that HSD is not cover in GST,

1. please advice applicability of taxes on above transactions

2. Documentation require to issue/received with contractor for deduction or payment of above excess/short issue of HSD.

[KASTURI SETHI]

You have delved into depth undesirably. No GST implication at all. What is brewing in your mind ? Come out with more aspects/details.

[Ganeshan Kalyani]

In my view, consideration would mean any value payable by the service receiver to the service provider. HSD supplied by you free to the contractor to carry out the work would also be included in the consideration of the job worker and GST is applicable on the total value. HSD was to be on job worker account. He cannot perform job work unless HSD is available with him. Hence, it is his input. But you are providing and also factoring it in the cost. Hence, GST will be charged on HSD part also.

[KASTURI SETHI]

Nice drafting and understanding the issue by Sh.Ganeshan Kalyani Ji. He reached the destination where I could not, having no commerce background.. I agree with him. I express my thanks to Sh.Ganeshan Kalyani Ji for enrichment of my knowledge.

[Prem Choudhary]

Thank for your advice,

I am totally disagree to include HSD amount ( issue by recipient of service ) to be included in Transaction value(T.V) for charging GST by job worker. HSD amount is not actually payable to job worker , How we can included in T.V. ? and this is rate contract (Job work) and it is agreed that arte will be chargeable without HSD , it can not be consider as INPUT.

My doubt about tax compliance on excess/short of HSD deduction/paid to job worker, in this case:-

1. Since the HSD is chargeable with actual rate and amount will be adjust(deducted/paid) in actual rate of HSD with Commercial DEBIT/ CREDIT Note therefore no any tax would be chargeable.

2. Another point is that Since recipient has not charge HSD amount to job worker and recipient are booking HSD consumption in cost hence it is not supply.

Please advice above points or else any provisions

[KASTURI SETHI]

When we talk of job work (irrespective of the fact whether GST regime or Central Excise era) it is implied that we are discussing taxable/dutiable goods. Do you want to arrive at the cost of job-worked goods ?

[YAGAY and SUN]

GST applicable on Goods sent for Job Work but not returned being consumed in the Process: AAR

The Authority for Advance Ruling (AAR), West Bengal has held that the goods sent for job work but not returned being consumed in the process is supply and therefore, is liable to GST. The applicant, a manufacturer of cable tray, angel ladder tray etc., which are mainly used for electrical works sent steel structures for galvanising to a job worker along with furnace oil, zinc, nickel that are to be consumed in the galvanising process.

The applicant sought for a ruling whether dispatch of those consumable materials is to be treated as supply from the principal to the job worker if they are not returned within the time allowed under section 143(1)(a) of the GST Act. The AAR observed that galvanising involves consumption of zinc, furnace oil, and sometimes nickel – either as raw materials or consumables. The AAR noticed the decision inRahee Infratech Ltd. = 2015 (12) TMI 1563 - CESTAT KOLKATA wherein CESTAT, Kolkata Bench decided a similar question in the context of CENVAT credit. In that case, the Tribunal refused to allow CENVAT credit on the zinc sent to the job-worker for galvanising on the ground that the said zinc had not been returned along with the galvanised steel structures. “The goods that are used up in the galvanising process cannot be separated from the galvanised goods.

The meaning attributed to ‘inputs’ in the Explanation to section 143 takes care of the difference between the inputs sent to the job-worker and the goods returned after some intermediate treatment/process like galvanisation that may exhaust some of the inputs sent out. It expands the meaning of ‘inputs’ to the intermediate goods that include, as embedded, attached or consumed, the inputs that are exhausted in the process of manufacturing the intermediate goods. So, the zinc, furnace oil or nickel exhausted in the process of galvanising need not be physically returned. If the galvanised structures are returned that will be sufficient compliance of section 143(1)(a) of the GST Act,” the Tribunal said.

AI Summary

Consumables treated as supply: consumables supplied for job work and consumed may be includible in transaction value for GST.
Whether HSD issued to a contractor is includible in the transaction value for GST hinges on whether the fuel supplied free to the job-worker constitutes part of the consideration and is consumed in the job-work process; if consumables sent for processing are exhausted and not returned, administrative rulings treat them as supplies liable to GST, whereas contractual segregation and adjustment by debit/credit notes are argued by others to avoid independent tax liability.