2022 (3) TMI 540 - AAR - GST

Classification of services - rate of tax - Job work or not - activity is coating on the goods supplied by the customers - section 2(68) of the CGST Act, 2017 - whether GST rate of 12% or 18% would be applicable in view of Sr. No. 26 (id) and (iv) of the Notification No. 11/2017 CT-Rate dated 28 June 2017 as amended vide Notification No. 20/2019 CT- Rate dated 30 Sep 2019 - HELD THAT - After the applicant have undertaken process on the goods supplied by their GST registered principal, the new product that emerges does not have a distinct name, character and use and therefore the applicant cannot be considered as a manufacturer of the impugned products. Further, the title to the goods on which the impugned coating treatments are effected, are with the principals and received by the applicant under the cover of a challan issued by the principal and the goods after process are sent back to the principal, as stated by the applicant during the course of the online hearing. Since no new product comes into existence after the process conducted by the applicant on the goods supplied by its principals, therefore the process undertaken will come under the purview of jobworker as defined under Section 2 (68) of the GST Act, 2017. Thus, it is found that, the applicant is only a job worker and as a job worker, carries out processes on goods supplied by its principals. The services provided by the applicant does not fall under (i), (ia), (ib), (ic) of the above mentioned notification. We have already found that the impugned services supplied by the applicant are in the nature of jobwork - the said services do not fall under entries at items (i), (ia), (ib) and (ic) above. Therefore we find that the subject supply of services will be covered by the residuary entry at item (id) of the said notification, namely, Services by way of job work other than (i), (ia), (ib) and (ic). The activity of the Applicant fits the definition of Job work under the present law. Further, in terms of the Apex court's ruling also, activity of coating is only a process undertaken on goods. Therefore, the activity undertaken by the applicant is covered under the definition of Job work' - the impugned services supplied by the applicant are in the nature of job work services, covered under Entry at item (id) under heading 9988 of Notification No.11/2017-Central Tax Rate dated 28.06.2017 as amended by Notification No. 20/2019- Central Tax (Rate) dt. 30.09.2019 attracting 12% GST.

Summary

Issues Involved:
1. Qualification of activities as job work under section 2(68) of the CGST Act, 2017.
2. Applicable GST rate: 12% or 18% as per Notification No. 11/2017 CT-Rate dated 28 June 2017, amended by Notification No. 20/2019 CT-Rate dated 30 Sep 2019.
3. Classification of services and applicable tax rate if not considered job work.

Detailed Analysis:

Issue 1: Qualification as Job Work
The applicant, engaged in coating activities on goods belonging to customers, sought clarification on whether their activities qualify as job work under section 2(68) of the CGST Act, 2017. The definition of job work is any treatment or process undertaken by a person on goods belonging to another registered person. The applicant argued that since they apply coatings on goods received from customers and return them after processing, their activities fall under job work. The authority agreed, noting that the process does not result in a new product with a distinct name, character, and use, thus confirming the activities as job work.

Issue 2: Applicable GST Rate
The applicant inquired about the applicable GST rate, whether 12% or 18%, under Notification No. 11/2017 CT-Rate as amended. The notification differentiates between job work services and manufacturing services on physical inputs owned by others. The applicant contended that their services should attract a 12% GST rate under entry (id) for job work services. The authority examined the relevant provisions and concluded that the applicant's services qualify as job work under entry (id), attracting a 12% GST rate. The authority referenced the GST Council's clarification and the Supreme Court's ruling in Maruti Suzuki Limited Vs. CCE, which distinguished between processing and manufacturing, supporting the 12% GST rate for job work.

Issue 3: Classification and Tax Rate if Not Job Work
Given the affirmative answer to the first issue, the third question regarding classification and tax rate if the activities were not considered job work was not addressed.

Conclusion:
The authority ruled that the applicant's activities qualify as job work under section 2(68) of the CGST Act, 2017, and the applicable GST rate is 12% under Sr. No. 26 (id) of Notification No. 11/2017 CT-Rate as amended by Notification No. 20/2019 CT-Rate. The third question was not answered due to the affirmative ruling on the first two issues.