GST Caselaw

#GSTCase-58-Gist of AAAR Judgements: – Impact of predominant use of Material in Job Work, Can services of commission agents be export of service, Taxation of UPS Supplied with built in batteries, Classification of Ayurvedic products as Cosmetics or Medicines

#GSTCase-58-Gist of AAAR Judgements: – Impact of predominant use of Material in Job Work, Can services of commission agents be export of service, Taxation of UPS Supplied with built in batteries, Classification of Ayurvedic products as Cosmetics or Medicines


Case-1: JSW Energy Ltd. [2018] 95 65 (AAAR-MAHARASHTRA)

Case-2: Global Reach Education Services (P.) Ltd. [2018] 96 107 (AAAR-WEST BENGAL)

Case-3: Switching Avo Electro Power Ltd. [2018] 96 106 (AAAR-WEST BENGAL)

Case-4: Sika India (P.) Ltd.[2018] 96 108 (AAAR-WEST BENGAL)

Case-5: Akansha Hair & Skin Care Herbal Unit (P.) Ltd. [2018] 96 243 (AAAR-WEST BENGAL)


Case-1: JSW Energy Ltd. [2018] 95 65 (AAAR-MAHARASHTRA)

Issue:  Impact of Predominant use of Material in Job Work

Query and Facts: Whether, given preposition that definition of job work under GST law may include even manufacture, process of conversion of Coal into electricity, by M/s JSW Energy Limited (hereinafter referred as “M/S JEL) on behalf of M/s JSW Steel Limited (hereinafter referred as M/S JSW”)is job work or not.

Decision by AAAR: Hon’ble Supreme Court has here explained the spirit of the Job-work. A process cannot be considered as job-work if principal sends minor inputs to the job-worker and all other inputs/goods utilized in the final product are being procured/purchased by the job-worker. This will defeat the very purpose and idea of job-work. Therefore, additions or application of minor items is permissible in job-work. For example, the process where a principal sending only buttons and thread to a job-worker to get the shirts manufactured by the job-worker by utilizing the fabric purchased by the job-worker cannot be considered as job-work in light of the above Judgment of Apex Court.

But such is not the case here. Though it is not possible to ascertain the quantity and value of the material being utilized by the job-worker in the conversion of coal provided by the principal into electricity accurately in absence define before us, it can nevertheless be seen from the details provided by the appellant that coal is not the only input used for the production of electricity. There is large quantity of water and air being utilized in the process. The other materials being used by the job-worker are not minor solutions to the Inputs and all inputs are not provided by the principal. Accordingly, it is seen that the process cannot be considered as Job-work following the ratio of the above judgment.

M/s JSL sent only water tankers to M/s JEL and received back Electricity from them on payment of job-charges and cost of other raw materials like coal and air. We are of the firm opinion that activity of M/S JEL is not Job Work in view of the Apex Court judgment as only minor additions by the job-worker on the inputs provided by the principal is envisaged in the law.

The processing undertaken by a person on the goods belonging to another registered person qualifies as job-work even if it amounts to manufacture provided all the requirements under the CGST/MGST Act in this behalf, are met with. The transaction between the Appellant and M/s JSL does not qualify for Job-Work under Section 2(68) and Section 143 of the said Acts.


Case-2: Global Reach Education Services (P.) Ltd. [2018] 96 107 (AAAR-WEST BENGAL)

Issue: Whether services of Commission Agent as Intermediaries to recipient situated outside the Country are Export

Query and Facts: Appellant is a Private Limited Company primarily engaged in promoting the courses of Foreign Universities in India among prospective students.  Appellant argued that function of an intermediary is to facilitate or arrange supply of goods or services between two or more persons. Appellant on the contrary was providing services on its own account, in the nature of marketing and promotion of courses of Foreign Universities in India and remuneration paid for these services was based on a percentage of fees paid by students admitted to the University.

Decision by AAAR: The Appellant in the instant case was free to refer students to Australian Catholic University (ACU) or any other University of its choice. The fee paid to Appellant was not tied to the promotional activities or expenses incurred to promote Courses of ACU but as a percentage of fee paid by the students who got admitted to ACU. In other words, no consideration was paid in spite of incurring expenses by the Appellant for promoting activities of ACU, if no student joined ACU. 

The Appellant promotes courses of the University, finds suitable prospective students to undertake the courses, and, in accordance with University procedures and requirements, recruits and assists in the recruitment of suitable students, and hence, the Appellant is to be considered as an intermediary in terms of Section 2(13) of the IGST Act. The services of the Appellant are not ‘Export of Services’ under the GST Act, and are eligible to tax.


Case-3: Switching Avo Electro Power Ltd. [2018] 96 106 (AAAR-WEST BENGAL)

Issue: UPS Supplied with in-built Battery is Composite Supply

Query and Facts: Whether UPS supplied with external storage battery is naturally bundled and hence a composite supply under the GST Act, or a mixed supply, as held by the West Bengal Authority for Advance Ruling.

Held: When a UPS is supplied with built-in batteries so that supply of battery is inseparable from supply of UPS, it should be treated as a composite supply and as a composite machine. UPS being the principal supply, the relevant tariff head for the composite supply will be 8504 under serial No. 375 of Schedule III in terms of Notification No. 01/2017-Central Tax (Rate) dated 28/06/2017 (1125-FT dated 28/06/2017 of the State tax).

Strength of battery, make of a battery or number of batteries is not unique to UPS but it varies as per power requirement of the customer. The storage battery has multiple uses and can be put to different uses and when supplied separately with static converter (UPS) it cannot be considered as a composite supply or a naturally bundled supply.


Case-4: Sika India (P.) Ltd.[2018] 96 108 (AAAR-WEST BENGAL)

Issue: SIKA Block Joining Mortar is classifiable under 3824 50 90.

Query and Facts: Appellant is a manufacturer of products used in building construction. One such product is manufactured and marketed by it under the brand name of “SIKA Block Joining Mortar” and is said to be used for joining masonry units like AAC blocks, Concrete blocks, fly ash bricks, etc.

The core issue involved is whether ‘SIKA Block Joining Mortar’ manufactured and marketed by the Appellant, is to be classified under Tariff Head 3214 90 10, which the Appellant was declaring voluntarily for the past few years and which the WBAAR held as 3214 90 90 to be the correct classification or Tariff Head 3824 50 90, which the Appellant now insists is the correct classification.

Held: Appellant submitted that the ‘SIKA Block Joining Mortar’ has no refractory property and it is not used to withstand extreme heat or high temperatures. It is also not used for surfacing preparation for facades, indoor walls, floors, ceilings, etc., it is only used for joining masonry units like AAC blocks, Concrete blocks, fly ash bricks, etc., which qualifies it to be classified under Tariff Head 3824 50 90.

Therefore, it is clear that ‘SIKA Block Joining Mortar’ is non-refractory and that it is not used for preparation of surfaces. Considering the nature, use and commercial identity of the item in question and, notwithstanding the Appellant’s earlier voluntary declaration about the classification of the item, we are not inclined to accept its classification under Tariff Item 3214. Instead, it is to be classified under Tariff Item 3824.


Case-5: Akansha Hair & Skin Care Herbal Unit (P.) Ltd. [2018] 96 243 (AAAR-WEST BENGAL)

Issue: Whether Ayurvedic Products used for beautification and external Manifestations are Medicaments or cosmetic products

Query and Facts: Whether Ayurvedic Products manufactured by the Appellant, are classifiable under Chapter 33, or any other Chapter, or as medicaments under Chapter 30 of the Tariff.

Held: As per, Rule 3(a) of Rules of Interpretation of HSN for Goods, “If ambiguity still persists, specific description prevails over general description In order to determine whether or not a product or a formulation is to be labelled as a “medicament” it is necessary to consider its efficacy in treating or remedying an “injury” an “ailment” or an “illness”. In Medical terms “illness'” or “ailment” is often defined as “A physical or mental disorder” [American Heritage Medical Dictionary], or “A complaint disease or physical disorder” [Farlex Partner Medical Dictionary].

None of these i.e. “Blackheads”, “Acne”, “Freckles”, “Black Patches”, “Scarring”, “Exfoliation”, “Blemishes”, “Rash” are by themselves, diseases or illnesses, or even injuries, though they may be caused by one or more of these. But treating them will not be addressing the disease or the illness or the injury. The products of the appellant are only addressing the external manifestations and are intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance.

As per the descriptions of the products printed on the labels of the products when packaged for retail sale and for information to the customer it is found that the products are used mostly for brightening the skin, controlling the excess oil secretion, keeping skin clean glossy and free of freckles and spots, beautifying the skin of sunburn and black patches, ensuring dazzling liveliness, enhancing glamour and beauty, preventing excessive perspiration, promoting feeling of freshness, increasing lustre of skin, keeping skin soft, fair, glowing, stop premature ageing and wrinkling of skin, preventing sunburn rashes, dryness, discolouration and burning sensation of skin, properly cleansing, exfoliating and moisturizing the skin, helping for removal of make-ups and sunscreen which clogs pores, helping in the normal firming and toning of skin along with hydrating the skin to make it glow, fresh and smooth, helping to skin and tighten skin pores, makes skin soft and more elastic, reducing excess skin oil, protecting from sunburn injury.

None of the above descriptions qualify for categorising the products as “medicaments” or “medicines” as they are not used in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings; rather they are more in tandem with the definition of ‘cosmetics’ as we find in the Drugs and Cosmetics Act, 1940, because none of the problems that these products treat can be classified as “injury” or “ailment”.

In view of the above discussions, we find that the 31 products discussed above, supplied or intended to be supplied by the Appellant, are not to be classified under Chapter 30, but are to be classified under Chapter 33 (Cosmetics) or Chapter 34 (Soaps), and are to be taxed accordingly.

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