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2021 (1) TMI 648 - AAR - GSTClassification of services - services of Electroplating surface coating and Electroless nickel plating provided by the applicant - service supplied by the applicant would fall under (id) or (ii) of Entry No.26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017 as amended or otherwise? - rate of GST. HELD THAT - The processes results in the formation of a coating on the materials/metals on which it is carried out. Also, as per the submission of the applicant, the coating done by carrying out the aforementioned processes enhances the durability of the materials/metals to some extent. However, as per the data available online, electroplating changes the chemical, physical, and mechanical properties of the workpiece. An example of a chemical change is when nickel plating improves corrosion resistance. An example of a physical change is a change in the outward appearance. An example of a mechanical change is a change in tensile strength or surface hardness which is a required attribute in tooling industry. Electroplating of acid gold on underlying copper- or nickel-plated circuits reduces contact resistance as well as surface hardness. Copper-plated areas of mild steel act as a mask if case hardening of such areas are not desired. Tin-plated steel is chromium-plated to prevent dulling of the surface due to oxidation of tin. The inside of a steel food can is electroplated with tin, a less reactive metal than iron which provides a physical barrier to oxygen and water, stopping the can from rusting. Compared to the electroplating process, a major advantage of electroless nickel plating is that it creates an even coating of a desired thickness and volume, even in parts with complex shape, recesses, and blind holes. Because of this property, it may often be the only option. Another major advantage of electroless nickel plating is that it does not require electrical power, electrical apparatuses, or sophisticated jigs and racks. Electroless nickel plating can have a matte, semi-bright, or bright finish. The manufacturing services is not akin to manufacture but are services which are related to the process of manufacture or assist in the process of manufacture of goods. It also appears that the process of Electroplating surface coating and Electroless nickel plating are, perhaps, the last of the processes to be carried out on goods/products during the course of manufacture, akin to coating goods/products with paint or spray painting, and completing of this process would result in the emergence of a finished product. We therefore find that the very purpose of the manufacturer of sending these goods/products for Electroplating surface coating/electroless nickel plating is that they are a very essential or indispensible part of the process of manufacture towards making the product a finished product i.e. without this process, the goods/products in question would not be finished products. It is found that although the procedure followed by the applicant is that of jobwork, we find that the process of Electroplating surface coating and Electroless nickel plating are essential services connected to the process of manufacture of the goods which results in the emergence of the finished product and would therefore be rightly covered under manufacturing services or services related to the manufacture of goods. Entry at item(iv) of Sr.No.26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017 (as amended) provides the most specific description to the services provided by the applicant as compared to the general description provided at item(id) of the said entry. It is therefore concluded that the services of electroplating surface coating and electroless nickel plating provided by the applicant are classifiable under item(iv) of Sr.No.26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017(as amended). The services of Electroplating surface coating and Electroless nickel plating provided by the applicant are classifiable under Heading 9988 (Manufacturing services on physical inputs(goods) owned by others) which appears at item(iv) of Entry No.26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017 (as amended). The GST liability on the above would be 18% upto 21.11.2019.
Issues Involved:
1. Classification of services provided by the applicant. 2. Applicability of GST rates on the services provided. Issue-wise Detailed Analysis: 1. Classification of Services Provided by the Applicant: The applicant, M/s. ENP Techno Engineers, provides Electroplating surface coating and Electroless Nickel Plating services. The core issue is whether these services fall under item (id) or item (iv) of Entry No.26 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 as amended. The applicant contends that their services should be classified under item (id) as job work, which does not amount to manufacture, and thus should attract a GST rate of 6%. They argue that their process does not create a new product but merely enhances the durability of the existing material. The judgment notes that the term "manufacturing services" is not defined in the GST Act, but it is distinct from "manufacture." Manufacturing services are related to the process of manufacture or assist in the process of manufacturing goods. The process of Electroplating surface coating and Electroless Nickel Plating is essential to the manufacturing process, making the product a finished product. Therefore, these services are classified under item (iv) of Entry No.26 as "Manufacturing services on physical inputs (goods) owned by others." 2. Applicability of GST Rates on the Services Provided: The judgment examines Notification No.11/2017-Central Tax (Rate) and its amendments, concluding that the services provided by the applicant fall under item (iv) of Entry No.26. The GST rate for item (iv) is 18% (9% SGST + 9% CGST). The applicant's confusion arises from the insertion of item (id) in Notification No.20/2019-Central Tax (Rate) effective from 01.10.2019, which specifies a GST rate of 12% (6% SGST + 6% CGST) for job work services. The judgment clarifies that for the period up to 21.11.2019, the applicable GST rate is 18% under item (iv). From 22.11.2019 onwards, the GST rate is 12% for services provided to registered persons and 18% for services provided to unregistered persons, as clarified by Circular No.126/45/2019-GST dated 22.11.2019. Ruling: The services supplied by the applicant fall under item (iv) of Entry No.26 of Notification No.11/2017-Central Tax (Rate) as amended. The GST liability is 18% (9% SGST + 9% CGST) up to 21.11.2019. From 22.11.2019 onwards, the GST liability is 12% (6% SGST + 6% CGST) for services supplied to registered persons and 18% (9% SGST + 9% CGST) for services supplied to unregistered persons.
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