2018 (11) TMI 59 - AAR - GST

Scope of Job-Work - supply of services - BPCL would commence movement of inputs to applicants plant through pipeline as a principal supplier on free of cost and the applicant acting as job worker would converting the inputs to industrial gases and same would be sent back to BPCL through pipelines - tax rate for supply of job work services - Valuation for GST. Activity amounting to Job-work or not? - Held that - The applicant being a job worker satisfy the necessary ingredients to carry out job work activity. The treatment or process undertaken by the applicant on the goods belong to the principal ie, BPCL. The goods on which treatment or process apply are the inputs of the principal. The principal transfer the inputs meant for job work on free of cost under intimation to the job worker . The term process is wide enough to include any activity of conversion, manufacture, development or preparation of goods. Therefore the activity of conversion of natural gas and other inputs to industrial gas qualify as treatment or process of inputs. Hence the activity squarely fall under the scope of job work . Valuation - Held that - Any activity whether amounting to manufacture or not, could qualify as job work activity, subject to the condition that the inputs owned by the principal and the job worker carried treatment or process on the inputs/goods. The value on which GST would be payable by the applicant for rendering of job work services shall be the transaction value ie, price actually paid or payable as per the commercial arrangement between the applicant and principal. No other cost shall be required to be considered for the valuation of the job work activity unless the same is specifically included in the job work charges as agreed between the parties. Rate of GST - Held that - The services included under the Heading 9988 are manufacturing services performed on physical inputs owned by others. The activity of the applicant is job work as the output is not owned by the applicant providing this service. Hence the activity falls under serial No.(ii) of the HSN 9988 taxable @18% GST. Ruling - The activity undertaken by the applicant of processing natural gas and other inputs received from BPCL free of cost basis and manufacturing industrial gases from them shall fall under the scope of job work under GST. The activity of the applicant being job work; is a provision of service, as the input as well as output is owned by the principal and not owned by the applicant and falls under serial No.(ii) of the 9988 taxable GST. GST is payable on the transaction value for which job work service is rendered.

Summary

Issues:
1. Whether the activity undertaken by the applicant amounts to 'job work' as defined under Section 2(68) of GST Laws and consequently classified as supply of services?
2. What would be the tax rate for supply of job work services if the proposed activity is considered as job work?
3. What is the value on which the applicant would be liable to pay GST if the proposed activity is considered as job work?

Analysis:

Issue 1:
The applicant, a manufacturer of industrial gases, desires to change the business model to a job work model with the customer providing inputs on a free of cost basis. The applicant sought an advance ruling on whether their activity qualifies as 'job work' under GST laws. The Authority for Advance Rulings analyzed the definition of job work under Section 2(68) of the GST Law, which involves any treatment or process undertaken by a person on goods belonging to another registered taxable person. The authority found that the applicant, as a job worker, satisfies the necessary requirements as they undertake treatment or process on goods belonging to the principal customer. The activity of converting natural gas and other inputs into industrial gases qualifies as 'job work' as per the GST Act.

Issue 2:
Regarding the tax rate for job work services, the authority referred to HSN 9988 under GST, which includes manufacturing services on physical inputs owned by others. The definition of 'manufacture' under Section 2(72) of GST Law was also considered, emphasizing the emergence of a new product with distinct characteristics. The authority highlighted that job work under GST includes manufacturing as well, and the applicant's activity of converting inputs into industrial gases falls under this category. Therefore, the applicable tax rate for the job work services provided by the applicant was determined to be 18% GST.

Issue 3:
In determining the value on which GST would be payable for the job work services, the authority clarified that the transaction value, i.e., the price paid or payable as per the commercial arrangement between the applicant and the principal, would be the basis for GST calculation. The ruling emphasized that no additional costs need to be considered for valuation unless specifically included in the job work charges agreed upon by the parties. Therefore, the GST payable by the applicant would be based on the transaction value for the job work services rendered.

In conclusion, the Authority for Advance Rulings issued rulings affirming that the applicant's activity of processing natural gas and other inputs into industrial gases through job work falls under the scope of 'job work' under GST. The service provided by the applicant is classified as a provision of service falling under HSN 9988 taxable at 18% GST, with GST payable on the transaction value for the job work services rendered.