GST Advance Ruling on Coal Conversion and Job Work
Converting coal into electricity is considered manufacturing, not job work, under GST rules.
- Ruling
- GST-ARA-05/2017/B- 08 Mumbai, dt. 05.03.2018
- Dated
- 05 Mar 2018
- Authority
- 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
- Converting raw materials into a new product is manufacturing.
- Job work rules do not apply to electricity generation.
- Supplies between related companies are taxable even without payment.
In short
The company asked the Maharashtra Authority for Advance Ruling (AAR) if turning coal into electricity for a related company counts as job work. The authority decided this process creates a new product, which is manufacturing, not job work.
What has changed
How it worked before
Many businesses assumed that processing raw materials for another company would automatically qualify as job work, allowing them to use specific tax exemptions for job workers.
What has changed
The authority ruled that because electricity is a distinct new product, the activity is manufacturing. This means you cannot use job work provisions to manage your tax liability for this process. Additionally, if you provide this service to a related company, the tax department will treat it as a taxable supply even if no money changes hands.
Who this affects
Power plants and manufacturing businesses that process raw materials for related companies.
An example
A steel plant processes iron ore into steel sheets for its parent company. Under this ruling, the plant cannot claim this is job work because the steel sheet is a new product. The plant must treat the supply as a taxable transaction under GST, even if the parent company does not pay a service fee.
What you should do
Review your service agreements to see if your process creates a new product. Remember that an advance ruling only binds the company that asked and its specific tax office; it is not a general law for all businesses. If you are in a similar situation, consult your tax advisor to see how this interpretation affects your specific contract.
If you do nothing
If you incorrectly classify your manufacturing as job work, you may face penalties for unpaid taxes and incorrect filings. A tax officer may disagree with your classification during an audit, leading to interest charges and legal disputes. Do not assume this ruling protects your specific business arrangement.
The terms explained
- Job work
- Any treatment or process undertaken by a person on goods belonging to another registered person.
- Manufacture
- Processing raw materials to create a new product with a different name, character, or use.
- Related persons
- Entities that have common ownership or control, which often triggers specific tax rules under GST.
The ruling in detail
Authority for Advance Ruling
M/s JSW Energy Limited
GST-ARA-05/2017/B- 08 Mumbai, dt. 05.03.2018 · Maharashtra
Questions before the authority
- Supply of coal or any other inputs on a job work basis by JSL to JEL
- Supply of power by JEL to JSL
- Job work charges payable to JEL by JSL
Facts
The applicant, JEL, and JSL are related entities. JSL proposes to supply coal to JEL on a free-of-cost basis for JEL to convert into electricity at its power plant. JEL would then supply the generated power back to JSL and charge for the services rendered.
Ruling
| Question | What the authority ruled |
|---|---|
| Supply of coal by JSL to JEL | Not entertained Pertains to JSL, not the applicant |
| Supply of power by JEL to JSL | Taxable supply Treated as supply between related persons |
| Job work charges | Does not survive Transaction is not job work |
The authority refused to entertain the first question as it pertained to the supply by JSL, not the applicant. It held that the supply of power by JEL to JSL is a taxable supply of goods. It further concluded that the transaction is not a job work arrangement, so the question regarding job work charges does not survive.
Reasoning
The authority reasoned that the conversion of coal into electricity results in a new product, which constitutes **manufacture** rather than job work under the GST Act. Because the activity is not job work, the provisions of Section 143 do not apply. Furthermore, since JEL and JSL are related persons, the supply of power is a taxable supply under Schedule I even if made without consideration. The ruling relied on the definitions of job work and manufacture under Section 2 of the CGST Act.
Provisions relied on
- Section 2(68) of the CGST Act
- Section 2(72) of the CGST Act
- Section 7 of the CGST Act
- Section 143 of the CGST Act
- Schedule I of the CGST Act
For the practitioner
This ruling clarifies that the conversion of raw materials into a distinct new commodity, such as coal into electricity, is **manufacture** and not job work. Practitioners should note that transactions between related entities will be treated as a taxable supply under Schedule I. It does not decide on the taxability of the initial supply of inputs by the principal if the applicant is the service provider.
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/AAR/maharashtra_gst-ara-05_2017_dt_5.3.18_jswel.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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