2022 (10) TMI 862 - AAR - GST

Classification of supply - applicable rate of GST - supply of goods or supply of services - activity of commercial vehicle's body building on job work basis, on the chassis supplied by the customer - HELD THAT - The applicant is collecting the charges for the activity which includes the cost of inputs / material used by the applicant and the labour charges for fabrication of the body. Thus it is evident that the applicant is fabricating body on the chassis belonging to the customer. The ownership of the chassis remains with the customer and at no stage of the process of fabrication of the body, the title of the chassis is transferred to the applicant. Therefore, the applicant is fabricating the body on the chassis belonging to another person and hence the activity is squarely covered under Para 3 of Schedule Il of the CGST Act, 2017 as a treatment or process which is applied to another person's goods and accordingly is a supply of services. The Explanatory Notes to the Scheme of Classification of Services states that the services included in the Heading 9988 - Manufacturing services on physical inputs owned by others are services performed physical inputs owned by units other than the units providing the service. As such, they are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. This Heading covers manufacturing services in which the output is not owned by the unit providing this service. Therefore, the value of the services in this Heading is based on the service fee paid, not the value of the goods manufactured. SAC - 99888 under Heading 9988 pertains to Transport equipment manufacturing services and Sub - Heading 998881 pertains to Motor vehicle and trailer manufacturing services. Therefore, the activity of the applicant as discussed above is appropriately classifiable under Service Accounting Code 998881. The activity is liable to GST at the rate of 18% as per entry at Sl No, 26 (iv) - 9988 - Manufacturing services on physical inputs (goods) owned by others - Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above of Notification No, 11/2017 Central Tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Determination of whether the activity of commercial vehicle body building on a job work basis, on the chassis supplied by the customer, constitutes a supply of goods or services.
2. Classification and applicable rate of GST for the activity if it is deemed a supply of goods.
3. Classification and applicable rate of GST for the activity if it is deemed a supply of services.

Analysis:

Issue 1:
The applicant, engaged in body building of commercial vehicles, sought an advance ruling to determine if their activity on customer-supplied chassis constitutes a supply of goods or services. The applicant argued that their work falls under works contract and job work as defined in the SGST/CGST Act. They contended that the activity is a service based on Schedule II, Paragraph 3, which deems the treatment or process applied to another person's goods as a supply of service. The applicant referenced Circular No. 52/2018 to support their claim that their activity should be classified as a supply of service.

Issue 2:
The jurisdictional officer confirmed that the applicant's questions were not pending or decided under the Act. Upon examination, it was found that the applicant's service of body building on customer-supplied chassis qualifies as a supply of service under Para 3 of Schedule II of the CGST Act. The applicant fabricates the body on the customer's chassis, and the ownership of the chassis remains with the customer throughout the process. Therefore, the activity is treated as a service under the mentioned provision.

Issue 3:
Having established the activity as a supply of services, the authority classified it under Service Accounting Code (SAC) 998881, which pertains to manufacturing services on physical inputs owned by others. The applicable GST rate for this classification is 18% (9% CGST + 9% SGST) as per Notification No. 11/2017 Central Tax (Rate). The ruling confirmed that the activity of commercial vehicle body building on customer-supplied chassis is a supply of service and is subject to GST at the specified rate.

This comprehensive analysis of the judgment outlines the arguments presented by the applicant, the jurisdictional officer's remarks, and the authority's detailed discussion leading to the ruling on the classification and applicable rate of GST for the activity in question.