Part 3 GST update on the case of M/s JSW Energy Ltd. dated 02.07.2018

In this update, we deliberate on the issue that whether the contention regarding the point that the job work cannot include process which amounts to manufacture was correct or not. It is submitted that the authority for advance ruling denied the arrangement in the case of M/s JSW Energy Ltd. as job work on the grounds that the coal was supplied to JEL by JSL and since completely different product being electricity was being generated, the processing amounted to manufacture and was not job-work entitled for benefit of section 143 of the CGST Act, 2017. However, the Appellate Authority for Advance Ruling (AAAR) analysed the facts minutely and concluded that an activity cannot be denied as job-work merely because the process amount to manufacture.
The submissions supporting the fact that job-work also includes process amounting to manufacture are listed as follows:
1. The FAQ released by CBEC itself mentions that the definition of job work under GST regime is much wider than that given under erstwhile Central Excise Laws under the Notification No. 214/86-CE. On the contrary, in the Central Excise Laws, job work was defined in such a manner so as to ensure that activity of job work amounts to manufacture whereas in the GST regime, processing on goods belonging to other person is job work irrespective of whether any manufacturing is involved or not.
2. The Supreme Court and High Court decisions in the case of Ujagar Prints, Harrison Synthetic Bristles indicates that the job worker can undertake processes which amount to manufacture.
3. The HSN code applicable for certain specified job work activity clearly uses the word ‘manufacturing services’ thereby meaning that process amounting to manufacture is covered within the ambit of job-work.
The definition of ‘job-work’ is produced for the sake of convenient reference as follows:-
UNDER GST REGIME:-
Section 2 (68) “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly;

UNDER CENTRAL EXCISE LAWS:-

As per Rule 2(n) of the Cenvat Credit Rules, 2004, and Explanation I to the Notification No. 214/86-CE dated 25.03.1986 ‘job work’ means processing or working upon of raw-material or semi-finished goods supplied to the job-worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression ‘job-worker’ shall be construed accordingly.

It can be clearly noticed that the definition of job work in the GST regime is much wider in scope and is not restricted to process resulting in manufacture of product. Consequently, the decision given by the Advance Ruling at the first instance appears to be incorrect which was corrected by the Authority for Advance Ruling (AAAR). However, the question which arises is that whether it is permissible for the AAAR to deviate from the main reason and pronounce decision by referring to altogether different ground. It is observed that the authority for advance ruling held that the arrangement is not job-work solely on the basis that the process amounts to manufacture. However, the AAAR accepted the submission of the appellant assessee but gave adverse decision by referring to altogether different issue that the electricity was not returned to the principal and was returned to the third party being MSEDCL. The AAAR also placed reliance on the Apex Court decision given in the case of Prestige Engineering infusing a new dispute as regards job work involving minimal addition of materials by the job worker. The other issues pertaining to this decision will be covered in our next update.
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Part 3 GST update on the case of M/s JSW Energy Ltd. dated 02.07.2018

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