The Maharashtra Authority for Advance Ruling (AAR) has in its recent ruling, in the case of M/s Kolhapur Foundry and Engineering Cluster (KFEC) deliberated upon GST on job work vs supply of goods i.e. difference between a job work and supply of goods and 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.
Facts of the Case:
- The applicant M/s Kolhapur Foundry 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.
Issues on which ruling was sought:
- Whether the activity of KFEC is supply of goods or supply of job work services?
2. The used waste sand which is of value ‘NIL’ will have any impact on valuation?
Order of Maharashtra AAR: Deliberation and Ruling on GST on job work vs. supply of goods
- From a combined reading of definition of ‘job work’ and the procedure of jon 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 existense , 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, we find that the finished product satisfied the definition of the term ‘Goods’ mentioned u/s 2(52) of CGST Act. We do not hesitate to treat this new product as “Goods”.
- Input received is waste material which is dumped at applicant’s location due to envirnmental 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.
- In our view , applicant does not satisfy the conditions mentioned for the term ‘job work’ u/s 2(68) of the CGST Act.
- Value of inward supply does not have direct bearing on the outward value in this case, since the applicant has admitted that the inward supply of waste sand is at Rs NIL.
- The rate of Rs 2.50 per kg on output supply of sand has taken into acount the valuation of input sand at ‘NIL’ value.
In view of above deliberations Maharashtra AAR consisting of A. A Chahure and P. Vinitha Sekhar held that the activity of the applicant M/s Kolhapur Foundry and Engineering Cluster is supply of goods.
Further it was held that the applicant’s rate of Rs 2.50 per kg on output supply of sand has taken into account the valuation of input sand at ‘NIL’ value. AAR also stated in its order that “In normal situations, in the subject case, if there is a price attached to the input supply of used sand, then it may have a proportionate impact on the rate of outward supply of sand”.
READ / DOWNLOAD ORDER:
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