PART-2 Update on Advance Ruling Decision in the case of M/s JSW Energy

In continuation to our earlier update regarding the decision given in the case of M/s JSW Energy Ltd., we hereby discuss the implication of the Supreme Court decision given in the case of M/S PRESTIGE ENGINEERING (INDIA) VS COLLECTOR OF C.EX., MEERUT [1994 (73) E.L.T. 497 (S.C.)] and relied upon by the AAAR. As stated in our earlier update, it was held by the Apex Court that a job worker should not add substantial goods during the process of job-work and only minor additions are permissible. Following this analogy, it was held that since in the case of M/s JSW Energy Ltd., only coal was supplied to JEL, the activity cannot be considered as ‘job-work’. Now, the question arises is whether it is necessary that all the goods used in the process are to be supplied by the principal to the job worker in order to claim the benefit of clearing goods without payment of duty? Well, the answer to this question lies in various judicial pronouncements that have been rendered by distinguishing the ratio advanced in the case of Prestige Engineering (India).

It was held in the case of COMMISSIONER OF CUSTOMS & C. EX., BHOPAL VERSUS ABHINAV CHEMICALS [2012 (284) E.L.T. 589 (Tri. - Del.)] that the notification no. 214/86-CE (pertaining to excise exemption to goods sent on job-work basis) does not require that all the raw materials for the manufacture of final product must be supplied by the principal manufacturer. Consequently, even if the job-worker uses inputs during the course of processing, it will not lead to denying the said process as job-work. Furthermore, it was also held that the conclusion given in the case of Prestige Engineering was based on the definition of job work as given under notification no. 119/75-CE which is different from the definition of job work as given under notification no. 214/86. Consequently, the ratio of the decision given by the Apex Court cannot be applied for the job work done under notification no. 214/86-CE. It was also held that the exercise is
revenue neutral as even if the job-worker paid central excise duty, the principal would be eligible to avail the credit of the same.

Similar view that it is not necessary that raw materials should also be supplied along with moulds and dies sent for job-work was taken in the case of COMMISSIONER OF C. EX., PONDICHERRY VERSUS WHIRLPOOL OF INDIA LTD. [2015 (316) E.L.T. 209 (MAD.) by Madras High Court. Apart from the above cited decisions, Bombay High Court has also held in the case of COMMR. OF CUS. (IMPORTS), MUMBAI VERSUS SUJAG FINE CHEMICALS (INDIA) LTD. [2013 (295) E.L.T. 32 (BOM.)] that the phrases used in a particular notification are to be strictly read and the meaning of job work as given in notification no. 119/75-CE cannot be imported for construing job work under notification no. 32/97-Cus. Hence, this decision also indicated that the conclusion given by the Apex Court in the case of Prestige Engineering was specific to job work under notification no. 119/75 and cannot be applied universally.

It is submitted that from the above referred decisions it is clear that there were contradictory views regarding this issue in the erstwhile taxation regime. It was not necessary condition that minimal material should be added by job-worker in order to avail benefit of exemption. It is further submitted that the GST Law is framed by taking the provisions of erstwhile taxation regime as base and most of the provisions are similar. Hence, whether the AAAR was correct in placing reliance on the decision of Apex Court is surely doubtful, particularly when there were contrary views on this issue even in the earlier regime. If the view of AAAR is taken, it will surely revamp the entire concept of job-work in the GST regime. We will discuss the impact of application of this opinion in the concept of job work in the GST regime in our next update.

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PART-2 Update on Advance Ruling Decision in the case of M/s JSW Energy

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