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2023 (1) TMI 976 - AAR - GSTClassification of supply - Composite supply or not - Job-Work or not - activity of tanning, with chemical consumption - treatment or processing undertaken on goods owned by other person - to be chargeable under the item i(e) of the Heading 9988 ie., or Manufacturing Services On Physical Inputs (Goods) owned by Others and if not what would be the applicable tax rate or not? - HELD THAT - In the instant case, on perusal of the invoices of job work and flowchart of the process submitted by the Applicant, it is clear that hides and skins (Chapter 41) are received from Applicant's customer for the job work of tanning and that certain tanning chemicals are added to assist the tanning process. After various processes, the raw hides and skins (Chapter 41) are converted in to finished leather (Chapter 41) and returned back to the Applicant's customer. The Customer (M/s Century Overseas -who is a registered person-Principal) while transporting the raw hides and skins and receiving the finished product, does not transfer the ownership to the Applicant. This is apparent in the Job Tanning order given by the customer (M/s Century Overseas). The terms and conditions stipulate that Applicant (M/s Zuha Leathers) should return the goods without any damage. Hence, it is clear that the Applicant in the instant case is the job worker, who has to process the raw hide supplied by the Principal and after tanning process (job work) return the same to the Principal. If the activity of the Applicant is a service by way of treatment or processing undertaken by a person on goods belonging to another registered person, it is rightly classifiable as processing of hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and as per (i)(e) (para 6.7) and applicable CGST rate is 2.5% and applicable SGST rate is 2.5%. However, if the activity of Applicant is undertaken on physical inputs (goods) which are owned by persons other than those registered under the CGST Act, then it falls within entry at item (iv) and applicable CGST rate is 9% and applicable SGST rate is 9%.
Issues Involved:
1. Classification of the tanning activity under GST. 2. Determination of the applicable tax rate for the tanning activity. Issue-wise Detailed Analysis: 1. Classification of the Tanning Activity under GST: The applicant, a registered entity under GST, sought an advance ruling to determine whether their tanning activity, involving the use of chemicals, falls under the purview of job work as per Section 2(68) of the CGST Act. The applicant processes hides and skins owned by others, adding tanning chemicals during the process. The applicant contended that their activity should be classified as job work, supported by various rulings and a circular from CBIC. According to Section 2(68) of the CGST Act, job work is defined as any treatment or process undertaken by a person on goods belonging to another registered person. The applicant argued that despite the significant value of the chemicals used, the activity remains job work. The authority examined the definition of composite supply under Section 2(30) of the CGST Act and concluded that the applicant's activity does not constitute a composite supply. The raw hides and skins (Chapter 41) are processed into finished leather (Chapter 41) and returned to the principal without transferring ownership. Therefore, the activity is classified as job work. 2. Determination of the Applicable Tax Rate for the Tanning Activity: The authority referred to Schedule II, Section 7 of the CGST Act, which treats any treatment or process applied to another person's goods as a supply of services. The relevant provisions of Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017, as amended by Notification No. 20/2017, were examined to determine the tax rate for manufacturing services on physical inputs owned by others. The notification specifies that services by way of job work in relation to processing hides, skins, and leather fall under Heading 9988 and are chargeable to CGST at 2.5% and SGST at 2.5%, totaling 5%. However, if the job work is performed on goods owned by unregistered persons, the applicable tax rate is 18% (CGST 9% and SGST 9%). The authority also referenced Circular No. 126/45/2019-GST, which clarifies the distinction between job work services for registered and unregistered persons. The ruling concluded that if the tanning activity is performed on goods belonging to another registered person, the applicable GST rate is 5%. If the goods belong to an unregistered person, the applicable GST rate is 18%. Ruling: The activity of the applicant is classified as a service by way of treatment or processing undertaken on hides, skins, and leather belonging to another person. The applicable GST rates are as follows: - If the goods belong to another registered person, the GST rate is 5% (CGST 2.5% and SGST 2.5%). - If the goods belong to an unregistered person, the GST rate is 18% (CGST 9% and SGST 9%).
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