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 in Rahee Infratech Ltd 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.
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