2024 (3) TMI 43 - AAR - GST

Classification of supply - composite supply or not - job-work - Bonding of imported Carbon friction strips to Synchronizer core received from customers - activity undertaken by the Applicant amounts to supply of service (job-work service) under the accounting code 9988 or not - bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708? Supply or not - whether the activity undertaken by the Applicant amounts to supply of service (job-work service) under the accounting code 9988? - HELD THAT - The activity of undertaken by the Applicant i.e. the process of bonding carbon friction strip with the metal component belonging to another person, will be supply of services in terms of Sl. No. 3 of the Schedule II to CGST Act, 2017 - the subject activity undertaken by the Applicant is a supply of service falling under SAC 9988. Whether the said activity would fall under the term job work? - HELD THAT - The activity undertaken by the Applicant is a job work, as the Synchronizer core belongs to their customer, throughout the entire process, as stated by them - the job worker can use his own goods for providing the services of a job worker and therefore usage of imported carbon strips by the Applicant will not alter the nature of services provided as job work services. Whether the bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708? - HELD THAT - The entire activity undertaken by the Applicant is a supply of service - job work service. The Applicant has mentioned in para 19 of their submission made along with the application that there are two supplies involved in their hands namely supply of specialized carbon friction strips and supply of services falling under heading SAC 9988 - there is a gross misunderstanding by the Applicant that there are two supplies involved. There is no supply of goods separately, as mentioned by the Applicant. The Applicant has bonded the carbon strips imported by them on the Synchronizer core belonging to their customer and the resultant product, after the job work being done, is sent back by the Applicant to their customers. The carbon strips are not sent separately under an invoice to treat that as a supply of goods. Further, as per provision contained in Section 7(1 A) of the CGST Act, 2017, it is expressly provided that certain activities or transactions shall be treated either as supply of goods or supply of services as referred to in Schedule II - when the law itself clearly states that the process undertaken on another person's goods is a supply of service, the question of composite supply does not come into picture. The concept of Composite Supply will be applied only when there is conscious supply of two or more taxable supply of goods or services or both. The Applicant is not supplying goods i.e. the carbon strips, separately, but they are binding these strips on to the component sent by their customers - the job worker can use his own goods for providing job work and the valuation of such services are as per Section 15 of the CGST Act. Thus, the entire job work activity is clearly stated as supply of service in Schedule II of the CGST Act, 2017, there remains no scope of doubt that along with supply of service there is also another the supply, i.e. supply of goods on the basis of component of materials used for providing the job work. The activity undertaken by the Applicant of Bonding of imported Carbon friction strips to Synchronizer core received from customers amounts to supply of job work services under SAC 9988.

Summary

Issues Involved:

1. Whether the activity undertaken by the Applicant amounts to supply of service (job-work service) under the accounting code 9988.
2. Whether the bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708.

Summary:

Issue 1: Supply of Service (Job-Work Service) under SAC 9988

The Applicant is engaged in the activity of binding carbon friction strips, imported from their Associate Company in the USA, on metal components (Synchronizer Core) received from customers under a job work challan. The resultant product, Synchronizer ring, is then cleared back to the customer under a tax invoice. According to Section 97(2) of the CGST/TNGST Act, this activity falls within the scope of Section 97(2)(a) of the CGST/TNGST Act, 2017, making the application admissible.

The activity undertaken by the Applicant is classified as a supply of services under Sl. No. 3 of Schedule II to the CGST Act, 2017, which states, "Any treatment or process which is applied to another person's goods is a supply of services." This activity falls under SAC 9988, which covers manufacturing services on physical inputs owned by others. The definition of job work under Section 2(68) of the CGST Act, 2017, supports this classification, as the Synchronizer core belongs to the customer throughout the process.

CBIC Circular No. 38/12/2018-GST dated 26.03.2018 clarifies that job workers can use their own goods for providing job work services. Therefore, the usage of imported carbon strips by the Applicant does not alter the nature of the services provided as job work services.

Issue 2: Composite Supply of Goods under CTH 6815 or 8708

The Applicant questioned whether the bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708. The ruling clarifies that the entire activity undertaken by the Applicant is a supply of service (job work service). The process involves receiving the Synchronizer Core from the customer, bonding the imported carbon lining, and sending the resultant product back to the customer under a tax invoice and E-way bill.

The Applicant's claim that there are two supplies involved (supply of specialized carbon friction strips and supply of services) is incorrect. The carbon strips are not sent separately under an invoice; they are bonded to the Synchronizer core belonging to the customer. The value of the service includes the value of the carbon strips, job charges, and profit.

Section 7(1A) of the CGST Act, 2017, and Schedule II clearly state that the process undertaken on another person's goods is a supply of service. Therefore, the concept of composite supply does not apply. The job worker can use their own goods for providing job work, and the valuation of such services is as per Section 15 of the CGST Act.

Ruling:

1. The activity undertaken by the Applicant of bonding imported carbon friction strips to Synchronizer core received from customers amounts to supply of job work services under SAC 9988.
2. The bonding activity does not amount to composite supply of goods under CTH 6815 or 8708, as discussed in para 6.3 above.