2019 (5) TMI 904 - AAR - GST

Classification of services - process and treatment carried out on the goods belonging to the principal and made available by the principal - job-work or not - Whether the activity of job work carried out on goods falling under Chapter heading 5702 and 5703 is liable to CGST at the rate of 2.5% under Entry No.26 (i)(b), Notification No. 11/2017-CT(R) dated 28.06.2017 (Corresponding 2.5% under Kerala (GST)? HELD THAT - Any treatment or process undertaken by a person on the goods belonging to another registered person is a job work as defined in Clause (68) of Section 2 of the CGST / SGST Act. As per the Circular No.38/12/2018 dtd. 26-03-2018 issued by CBEC, it is clarified that, in addition to the goods received from the principal, the job worker can use his own goods for providing the services of job work. The services are performed on physical inputs owned by units other than units providing the services. As such, they are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. Under job work services, the output is not owned by the unit providing this service. Therefore, the value of the services is based on the service charge paid, not the value of the goods manufactured. The job worker, as a supplier of services, is liable to pay GST if he is liable to be registered. He shall issue an invoice at the time of supply of the services. The value of services would include not only the service charges but also the value of any goods or services used by him for supplying the job work services, if recovered from the principal. The materials supplied for execution of job work are falling under Chapter 50 to 63 in the First Schedule to the Customs Tariff Act, 1975. The materials like carpets, coir etc. are supplied by the principal for executing job works along with moulds in the required designs. All the raw materials supplied by the principal are covered under Chapter 50 to 63 of the Customs Tariff Act, 1975, Therefore the job work services applied on such goods squarely come under Sl.No. 26 (i)(b) of Notification 11/2017 CT (Rate) dated 28.06.2017 and taxable @ 5% GST.

Issues:
1. Whether the process and treatment carried out on the goods belonging to the principal and made available by the principal amounts to job work?
2. Whether the activity of job work carried out on goods falling under Chapter heading 5702 and 5703 is liable to CGST at the rate of 2.5% under Entry No.26 (i)(b), Notification No. 11/2017-CT(R) dated 28.06.2017 (Corresponding 2.5% under Kerala GST)?

Issue 1: Whether the process and treatment carried out on the goods belonging to the principal and made available by the principal amounts to job work?

The judgment states that any treatment or process undertaken by a person on the goods belonging to another registered person is considered job work as defined in Clause (68) of Section 2 of the CGST / SGST Act. The Circular No.38/12/2018 issued by CBEC clarifies that job workers can use their own goods in addition to those received from the principal for providing job work services. Job work services are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. The output is not owned by the unit providing the service, and the value of services is based on the service charge paid, not the value of the goods manufactured. Job workers are liable to pay GST if they are required to be registered and must issue invoices at the time of service supply, including the value of any goods or services used for providing the job work services if recovered from the principal.

Issue 2: Whether the activity of job work carried out on goods falling under Chapter heading 5702 and 5703 is liable to CGST at the rate of 2.5% under Entry No.26 (i)(b), Notification No. 11/2017-CT(R) dated 28.06.2017 (Corresponding 2.5% under Kerala GST)?

The ruling confirms that the job work services applied to goods supplied by the principal falling under Chapter 50 to 63 of the Customs Tariff Act, 1975, are taxable at 5% GST. The materials provided for execution of job work, such as carpets and coir, fall under Chapter 50 to 63. Therefore, the job work services applied to these goods fall under Sl.No. 26 (i)(b) of Notification 11/2017 CT (Rate) dated 28.06.2017 and are subject to 2.5% CGST and 2.5% SGST as per Entry No. 26(i)(b) of the notification.

In conclusion, the judgment clarifies that the activities carried out by the petitioner, a job worker, on goods provided by the principal constitute job work as defined under the relevant GST laws. Additionally, it establishes the tax liability on job work services performed on specific categories of goods under the relevant notification, ensuring clarity on the applicable GST rates for such services.

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