Leasing & Maintaining Of Industrial Gas Plant Doesn't Qualify As "Job Work": AAR

The applicant, a Government of India undertaking in the business Petrochemical, owns and operates an oil refinery in the state of Odisha located at Paradeep. The Applicant refines crude oil and produces several petroleum products.

The Applicant requires Hydrogen gas, Nitrogen gas and HP steam for its refining activity which are collectively referred to as 'Industrial Gases'. Industrial Gases can be obtained from inputs such as Naphtha and other utilities such as Demineralised water (DM water), Power, Cooling water, service water, instrument air etc.

The applicant entered into an agreement with M/s Praxair for the construction of a hydrogen and nitrogen gas plant inside the applicant's premises at Paradip. M/s Praxair had constructed, installed and successfully commissioned the Hydrogen and Nitrogen Gas Plant inside the applicants premises.

M/s Praxair then leased the plant for a period of 15 years to the applicant for the consideration reserved on the terms and conditions of the contract. As per the contract, M/s Praxair has been charging lease/rental charges and operation and maintenance (O & M) charges for the nitrogen and hydrogen plants.

Scrutiny of the sample invoices revealed that M/s Praxair is raising invoices for fixed lease charges for nitrogen and hydrogen plants under SAC code 997212 (GST Rate, 18%), fixed operation and maintenance charges for nitrogen and hydrogen plants under SAC code 998717 (GST Rate, 18%), and variable operation and maintenance charges for nitrogen and hydrogen plants under SAC code 998717 (GST Rate, 18%).

The production plant was leased to the applicant on a monthly rent basis. The physical and peaceful possession of the production plant has been handed over to the applicant, and for that, the applicant is paying lease/rental and O&M charges to M/s Praxair. The plant is no longer under the control and possession of M/s Praxair.

The applicant claimed that M/s Praxair uses its plant to produce hydrogen and nitrogen gas by using the inputs provided by the applicant, which may not be correct. M/s Praxair, is manufacturing industrial gases out of the raw material supplied by the applicant, and the gases so manufactured are exclusively used by the applicant.

The issue raised was whether nitrogen gas and HP steam under the contract would fall under "job work" in terms of section 2(68) of the Central Goods and Service Tax Act, 2017 (CGST Act) and Odisha Goods and Service Tax Act, 2017.

The AAR observed that there is no specific job work agreement between the applicant and M/s Praxair. No job work charges or any processing or conversion charges of inputs have been claimed by M/s Praxair. The manufacturing of gases is not being done at M/s Praxair's production plant. Therefore, the concept of "job work" is not present in the entire transaction.

The AAR relied on the decision of the Bombay High Court in the case of Samodar Padmanath Rao in which it was held that the 'process' is subject to a particular method or technique of preparation, handling or other treatment, designed to affect a particular result. Praxair subjected the Inputs to a particular method so as to affect the result of obtaining Industrial Gases. Hence, the activity would fall within the ambit of 'process' by the yardstick established by the Bombay High Court.

Applicant's Name: M/s IOCL

Citation: 03/ODISHA-AAR/2021-22

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