The Tamil Nadu Appellate Authority for Advance Ruling (AAAR) recently upheld the decision of the Authority for Advance Ruling that Goods and Services Tax (GST) is applicable on the value of silver that is extracted from old or used batteries received free of cost from Indian Naval formations. The silver extracted from the old batteries are then repurposed to manufacture new batteries by the applicant.
The Appellant, High Energy Batteries (India) Limited (High Energy), based in Mathur Industrial Estate, Tamil Nadu, manufactures specialised Silver Oxide Zinc batteries for torpedo propulsion and supplies the same to Indian defence formations.
High Energy filed an appellate application following the ruling of the Advance Authority where it was ruled that the value of silver supplied free by the Navy is liable to be included in the taxable value of the new batteries manufactured and supplied by the company.
The appellant was represented before the Authority by M. Ignatius (Director – Operations), R. Swaminathan (Chief Financial Officer) and P.G. Srikanth (Consultant) who also appeared for the personal hearing before the Appellate Authority on 05.03.2025.
During the hearing, the Director explained that the silver used in manufacturing is extracted from old, non-serviceable batteries provided free of cost by the Navy and that only the extraction and processing cost of the silver is included in the invoice value.
The CFO stated that approximately 156 kg of silver is obtained from one such used battery and that the cost of extraction is ₹2,500 per kg. The appellant contended that the value of the free silver should not form part of the taxable value since the price agreed in the contract was the only consideration receivable by High Energy from the Navy and also because the raw materials (silver) were not sourced by High Energy themselves.
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High Energy further argued that even if the transaction were treated as a job work arrangement under Section 143 of the CGST Act, their activity would qualify as a ‘manufacturing service’ under SAC 9988, attracting only 18% GST instead of 28%, as the activity would be classifiable under the job work provisions rather than supply of finished goods.
The two-member Bench of Dr. Ram Niwas, Principal Chief Commissioner of GST & Central Excise and Dr. D. Jagannathan, Commissioner of Commercial Taxes rejected the job work argument.
The Bench observed that silver is the main raw material in the manufacturing process and the supply of the same by the Navy constitutes a non-monetary consideration under Section 2(31) of the CGST Act, 2017.
Since the supply of used batteries by the recipient contributes directly to the value of the finished goods, the same was liable to be included in the taxable value under Section 15(2)(b) of the CGST Act. The AAAR clarified that merely entering into a contract excluding the value of free-supplied goods cannot override the operation of Section 15(2)(b).
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The Authority also dismissed the Appellant’s argument relying on CBIC Circular No. 47/21/2018-GST, clarifying that the same pertains to moulds and dies only, and does not apply in this case as silver is not a capital good but an integral consumable input here.
The AAAR dismissed the appeal, concluding that the manufacturing activity undertaken by the appellant does not qualify as job work under Section 143 of the CGST Act, and that GST is payable on the entire taxable value of the batteries supplied, including the value of the silver received free of cost from the Navy.