2021 (10) TMI 626 - AAR - GST

Classification of services - Job Work - rendering of premium CED Coating, Powder Coating and metal finishing coating services - to be treated as a Service as per Schedule II- Point No. 3 or not - N/N. 20/2019 Central Tax (Rate) New Delhi, 30th September, 2019 - GST Rate on Job work is reduced to 6% from 9% is applicable to the firm or not - HELD THAT - 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 jobwork as defined under Section 2 (68) of the GST Act, 2017. Thus, 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 notification. The impugned Services supplied by the applicant are in the nature of jobwork. Further the said services do not fall under entries at items (i), (ia), (ib) and (ic) above. Therefore 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). Hon ble Supreme court in the case of Maruti Suzuki Limited Vs. CCE, New Delhi, 2015 (3) TMI 784 - SUPREME COURT has also held that there is a distinction between processing and manufacture and that Electro Deposition (ED) Coating of anti-rust treatment to increase shell life of various component is merely a processing activity and not a complete manufacturing activity. 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 N/N. 11/2017-Central Tax Rate dated 28.06.2017 as amended. Whether Notification No.20/2019-Central Tax (Rate) New Delhi, 30 11 September, 2019 - where GST Rate on Job work is reduced to 6% from 9% is applicable to the firm? - HELD THAT - The service supplied by the applicant is in the form of job-work service and is covered by Entry at item (id) under heading 9988 of N/N. 20/2019-Central Tax (Rate) dt. 30.09.2019. Hence the subject notification is applicable to their case.

Summary

Issues Involved:
1. Classification of the process as a service and determination of whether it qualifies as job work.
2. Applicability of Notification No. 20/2019-Central Tax (Rate) regarding the reduced GST rate on job work.

Issue-wise Detailed Analysis:

1. Classification of the Process as a Service and Determination of Whether it Qualifies as Job Work:
The applicant, M/s. Fine Electro Coating, is engaged in CED Coating and Powder Coating services, receiving products from customers and processing them through Phosphating Treatment followed by either CED or Powder Coating. The applicant argued that their activities should be classified as job work under Section 2(68) of the CGST Act, 2017, which defines job work as any treatment or process undertaken by a person on goods belonging to another registered person.

The Authority examined the nature of the processes undertaken by the applicant, noting that Phosphating Treatment is a chemical treatment that does not result in a new product but prepares the surface for subsequent coating. The process increases the lifespan of the parts without changing their basic characteristics, thus not resulting in the emergence of a new product. The Authority concluded that the applicant's activities do not constitute manufacturing as defined under Section 2(72) of the GST Act, 2017, but are indeed job work since they involve processing goods belonging to another registered person without creating a new product.

The Authority further emphasized that the goods are received under a delivery challan and returned to the principal after processing, with the applicant only receiving job charges. This aligns with the conditions specified in Section 143(1)(a) of the CGST Act, 2017, which mandates the return of goods to the principal within one year after job work.

2. Applicability of Notification No. 20/2019-Central Tax (Rate) Regarding the Reduced GST Rate on Job Work:
The applicant sought clarity on whether the reduced GST rate of 6% for job work services, as per Notification No. 20/2019-Central Tax (Rate) dated 30th September 2019, applies to their services. The Authority analyzed the relevant provisions of Notification No. 11/2017-Central Tax Rate dated 28.06.2017, and its amendments, particularly the entry at item (id) under heading 9988, which covers job work services not falling under specific categories listed in items (i), (ia), (ib), and (ic).

The Authority found that the applicant's services do not fall under the specified categories but are covered by the residuary entry at item (id), which includes job work services other than those explicitly mentioned. Therefore, the reduced GST rate of 6% as per Notification No. 20/2019-Central Tax (Rate) is applicable to the applicant's job work services.

Conclusion:
The Authority ruled affirmatively on both questions raised by the applicant. The process followed by the applicant is treated as a service and qualifies as job work under the GST Act. Consequently, the reduced GST rate of 6% as per Notification No. 20/2019-Central Tax (Rate) is applicable to the applicant's job work services.