GST Ruling on Job Work Charges for Power Generation from Coal
Generating power from coal supplied by another company is not job work if electricity passes through a public grid.
- Ruling
- MAH/AAAR/SS-RJ/01/2018-19 dated 02.07.2018
- Dated
- 02 Jul 2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- JSW Energy asked if converting coal into electricity for a client is job work.
- Authorities ruled manufacturing processes can legally qualify as job work under GST.
- Power generation here failed job work rules due to using the public grid.
- The power company also supplied major essential inputs like water and air.
In short
A steel manufacturing company proposed buying coal and sending it to a power generation company to convert into electricity. The power plant would convert the coal and supply the generated power back to the steel plant for its own use. The power company asked tax officers whether this setup qualifies as job work under Goods and Services Tax (GST) to apply lower job work tax provisions.
What has changed
How it worked before
Before this ruling, many businesses believed that if a process created an entirely new product like electricity, it was manufacturing and could never be job work. Others assumed that sending raw materials to a third party to generate power for captive use would automatically qualify for GST job work benefits.
What has changed
The Maharashtra Appellate Authority for Advance Ruling (AAAR order MAH/AAAR/SS-RJ/01/2018-19) clarified that a manufacturing process can legally qualify as job work under Section 2(68) of the CGST Act. However, this specific power conversion setup failed to qualify under Section 143. Because generated electricity went into the state electricity grid, the goods were not directly returned to the primary business premises without third-party intervention. Furthermore, the power plant supplied major inputs like water and air, which went beyond permissible minor additions by a job worker.
Who this affects
Manufacturing companies that send fuel or raw materials to third-party plants to generate electricity or other goods that route through public utility networks.
An example
A cement business buys coal and sends it to an independent power plant to generate electricity for its cement factory. The power plant uses its own water supply and feeds the generated electricity into the state power grid to deliver it to the cement plant. If the power plant asks whether its charges qualify for job work under GST, this ruling suggests the answer is no. The electricity moves through a public state grid and the power plant supplies essential inputs like water, failing key job work conditions.
What you should do
Review your processing contracts if you route processed goods through public infrastructure or rely on processors to supply primary inputs. Remember that an advance ruling binds only the company that asked for it and their specific tax jurisdiction. If your business runs a similar arrangement, consult a tax professional or apply for a fresh advance ruling before claiming GST job work benefits.
If you do nothing
If you treat power generation or similar arrangements as job work without meeting statutory conditions, tax authorities can reject your claim. You may face demands for full regular GST on the transaction value along with interest and heavy penalties. Misclassifying these services can also lead to disallowance of input tax credit.
The terms explained
- job work
- A service where a business carries out a process or treatment on goods owned by another registered business.
- principal
- The registered business owner who sends raw materials or inputs to another person for job work.
- input tax credit
- The GST a business pays on its business purchases, which it can use to reduce the GST it owes on its sales.
The ruling in detail
Appellate Authority for Advance Ruling
M/s JSW Energy Limited
MAH/AAAR/SS-RJ/01/2018-19 dated 02.07.2018 · Maharashtra
Questions before the authority
- Whether the supply of coal or any other inputs on a job work basis by JSL to JEL is covered under job work.
- Whether the supply of power by JEL to JSL generated from such inputs qualifies under job work.
- Whether job work charges payable to JEL by JSL are governed by job work provisions under GST.
Facts
JSW Steel Limited (JSL) proposed to procure coal and supply it to JSW Energy Limited (JEL) for conversion into electricity, which would then be supplied back to JSL for captive use in its steel manufacturing units. JEL was to receive job work charges for processing the coal into power, while residual fly ash and by-products would vest with JSL. JEL sought an advance ruling on whether this processing arrangement qualified as job work under GST, and appealed after AAR held that generating a new commodity (electricity) amounted to manufacture and could not be job work.
Ruling
| Question | What the authority ruled |
|---|---|
| Job work treatment for conversion of coal into electricity | Does not qualify as job work Failed requirements under Section 2(68) and Section 143 of CGST Act |
| Applicability of job work provisions to processes amounting to manufacture | Qualifies as job work provided statutory conditions are fulfilled AAR ruling modified on this principle |
The AAAR modified the AAR order, holding that **processing amounting to manufacture can qualify as job work** under GST if statutory conditions are met. However, on facts, the AAAR held that the proposed transaction between JEL and JSL **does not qualify as job work** under Section 2(68) and Section 143 of the CGST Act. The authority observed that JSL required coking coal for steelmaking whereas steam coal was being used for power generation, and electricity injected into the State grid could not be directly brought back to the principal's premises as mandated by Section 143.
Reasoning
The AAAR accepted the legal principle that under Section 2(68) of the CGST Act, a process carried out by a job worker on goods belonging to a principal can qualify as job work even if it results in manufacture. However, under Section 143 of the CGST Act, job work requires that inputs sent by the principal must be returned or processed goods brought back to the principal's premises without third-party intervention. In this arrangement, power generated was fed into the MSEDCL utility grid, making it physically and legally impossible for JSL to directly bring back the processed goods without third-party regulation. Furthermore, JEL provided major inputs like water and air itself, exceeding permissible minor additions by a job worker as laid down in Supreme Court precedent.
Provisions relied on
- Section 2(68) of the CGST Act, 2017
- Section 2(72) of the CGST Act, 2017
- Section 143 of the CGST Act, 2017
- Rule 45 of the CGST Rules, 2017
- CBIC Circular No. 38/12/2018-GST dated 26.03.2018
- Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
For the practitioner
Establishes that **processes resulting in manufacture can qualify as job work**, overruling AAR's narrow interpretation. However, job work benefits will be denied where inputs are routed through utility grids outside the direct control of the principal and job worker, or where essential primary inputs are supplied by the job worker rather than the principal.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/jsw-order-maharastra.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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