Whether processing of waste sand provided by foundries is treated as job work?

PJ\CASELAW\3571

Issue: - Whether processing of waste sand provided by foundries is treated as job work? Brief Facts: - The applicant M/s Kolhapur and Engineering Cluster (KFEC), is involved in promotion of commercial activities relating to Foundry Industry & preservation of environment through its Sand Reclamation Plants. Used / waste sand of Foundry Industry is neither capable of being reused nor being capable of being dumped anywhere in open, due to environmental reasons, like contamination of futile soil / water pollution. Accordingly, its value is treated as zero. Applicant processes such waste sand vide heat treatment & various other set of small procedures and 80% of Input (Waste Sand) is recovered as finished material (Fresh sand) after 20% loss. During this process the chemical properties of Sand are changed in such manner due to heat and other processes, that the quality of the reclaimed sand is better for foundry use as compared to freshly mined sand. The question raised before the AAR was that whether the processing carried out on waste sand is to be considered as ‘job work’ or not. Appellant’s contention: - The learned advocate appearing for the appellant approached the Maharashtra AAR seeking advance ruling on whether the activity carried on by it would amount to “Supply of Goods” or “Job Work services” and whether the waste sand, which is valued at nil, will have any impact on output valuation. Applicant also submitted that there is no direct correlation between the exact amount of sand supplied by the foundry units and that the same amount being taken up by the said units after processing. Further it is impossible to segregate the quantities, understand and identify as to which sand was given to whom, as the processing is done for the complete lot and the same goes against the basic principle of jobwork which is “process is undertaken on material belonging to some another registered person” Reasoning of the Judgement: - After considering the submissions made by the applicant and from the combined reading, it was noted that: - The definition of ‘job work’ and the procedure of job work as prescribed u/s 143 of the CGST Act and Rule 45 of the CGST Rules, it is the principal who will send inputs to the job worker for undertaking any treatment or process that may or may not amount to manufacture and will bring back same after the completion of job work. Thus, the person who sends goods to the job worker is the principal and the person who undertakes treatment / processing is a job worker. - It is found that, the applicant by applying different processes and treatment on the waste sand received and using its own consumables to bring into existence, afresh new finished usable product, which is distinct commodity and has commercial value. Therefore, in our view, the activity undertaken by the applicant satisfies the conditions of term ‘manufacture’ u/s 2(72) of the CGST Act. Hence such activity amounts to ‘manufacture’. - Considering the quality, composition, distinct character and use of the product emerges from the process and treatment undertaken, it was held that the finished product satisfied the definition of the term ‘Goods’ mentioned u/s 2(52) of CGST Act. The AAR do not hesitate to treat this new product as “Goods”. - Input received is waste material which is dumped at applicant’s location due to environmental concerns. The intention of the foundries / suppliers is not to treat the waste sand as semi or finished goods for the purposes of further process. Actually, waste sand is a raw material for the applicant and after the processing, usable sand is produced which is then sold to the foundries as when orders are received. The sand is not sold to the foundries in a fixed ratio to the waste sand received. No processing charges are collected by the applicant rather the fresh sand is sold to foundries at Rs 2.50 per kg, whereas freshly mined sand is available as Rs 3 per kg and difference being minor shows that the applicant is not a job worker in the subject case. - Reliance was placed on the case of Prestige Engineering (India) vs. Commissioner of Central Excise [1994(73) ELT 497 (SC)], The SC had observed that where the principal sends minor input to the job-worker and all other goods utilised in the final product belongs to the job worker, then the said process cannot be considered as job work. - In the present case, the value of final product only consists of plant and machinery, operation cost and other overheads whereas value of inputs received from custom is of nil valuation in the costing of final product. Accordingly, the activity carried on by it should be considered as supply of goods and not job work services. - Further the activity undertaken by the applicant satisfies the condition of term “manufacture” as per Section 2(72) of CGST Act and the finished product is different in character, name and use than the waste sand received as input. The new product is movable property so AAR concluded that the transaction in question will be treated as “supply of goods”. Decision: - Activity is sale of goods and not job work.Comment: - In the referred case, AAR deliberated on job work vs. supply of goods i.e., difference between a job work and supply of goods. Reference was made to the decision given by the Apex Court in the case of Prestige Engineering India wherein it was held that where the principal sends minor input to the job worker and all other inputs and goods utilized in the final products belongs to the job worker then said process cannot be considered as a job work. The decision stated that if the quantum of goods employed by the job worker on its own account was high, the activity undertaken is to be considered as manufacture rather than processing and only activity of processing is to be considered as job work. The above decision appears to be improper as the law does not specify the quantum of inputs to be used by the job worker on his own account. Moreover, in the present case, it was pointed that there was no nexus between the waste sand sent by foundry and the processed sand purchased by the foundry from the applicant. The job work requires one to one co-relation with the inputs sent for processing on job work. This is the main reason for treating the present activity as sale of goods rather than job work.

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PJ\CASELAW\3571

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