GST@ 12% ON JOBWORK AGAINST 20/2019- Central Tax (Rate), Goods and Services Tax - GST

[RSundaram RAMASAMY]

Dear All,

We are doing job work activities to aviation customers for the Mfr of Rubber product & Metal Product. Now we charged GST @ 18%. and Using SAC Code 9988 [ (ii) Manufacturing services on physical inputs (goods) owned by others, other than (i) above.]

As per Not.No. 20/2019- Central Tax (Rate), GST rate will be change @ 12%.

Kindly suggest us, can we implement GST @ 12 % for further job work activities for rubber product and metal product ?

Thanks

Posts / Replies

[Shilpi Jain]

Considering the definition of job work and the amendment made by the notification, treatment or process on goods belonging to a registered person (if not falling under other entries of 17(i) would be liable @ 12%.

So if your principal is a registered person then gst @12% will be applicable from 1st oct 19

[Ganeshan Kalyani]

If the process amounted to manufacture then the rate of GST is 18%. If it is only a job work process not amounting to manufacture then the rate of tax is 12%.

[KASTURI SETHI]

Dear Querist,

Pl. let me know which manufacturing process are included in your manufacturing services as claimed by you. Do you know the difference between manufacturing process and manufacturing service ? What job-work processes are involved in both products ? Post in detail in respect of both products separately.

Pl. also go through all the replies filed against Issue ID No.115505 & 115507 both dated 9.10.19 and Issue ID No.115496 dated 5.10.19.

[KASTURI SETHI]

Also see replies against Issue ID Number 115487 dated 3.10.19

[RSundaram RAMASAMY]

Sir,

Thank you for your valuable reply

I have one doubt about amount to manufacture

Actually We have received following way doing job work :

1. Rubber Compound received from customer. then we are converting to Product like O-Ring,seal etc.

2. Metal rod received from customer, then we are converting to product like bolt, nut, other product etc.

3. Product received from customer, then we are coating the product.

After completion of job work, we return back to customer with scrap.we have not add any material with it and we are doing only labour activities.

In this circumstance, can you suggest is this comes under amount to manufacture or not ? and GST @ 12 % or 18%?

Thank You

[KASTURI SETHI]

With reference to your response above , point-wise view is as under

Point No.1. Amounts to manufacture as a new product emerged.

2. Amount to manufacture as a new product emerged.

3. Here coating is must for the above products. It is a manufacturing process. This process integrally absorbed into the both products.

Thus all the above job-work processes amount to manufacture. There is no dispute about the status of job-work. The dispute is whether your job-work processes are covered under Serial No. 26 (1)(id) or (iv). If covered under (id) rate is 12% and if covered under (iv), the rate is 18%. The term,"Manufacturing Service" has not defined in the CGST Act. In my view, your job-work is covered under Serial No.26 (1)(id) and rate of tax applicable is 12%. This (1)(id) covers both which may or may not amount to manufacture. In the absence of definition of 'Manufacturing Service' , the situation is fluid and calls for issuance of clarification by the Board.

[Alkesh Jani]

Dear Experts,

For sake of my knowledge you are requested to give your valuable insight, please peruse following definition :-

“(72) “Manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly”

“(68) “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly”

“(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”

1) Please explain goods belonging to another person, means goods includes inputs?

2) In manufacture distinct name, character and USE, are must for the emerged product, means it does not apply to semi finished goods and when finishing is done it can be termed as manufactured goods.?

3) if any inputs are used by person (job worker) say out of 5 inputs 1 input is used by the person then the said activity does not fall within the ambit of "Job work"?

Thanks in advance

With Regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

Point-wise my reply is as under :-

(1) YES.

(2) YES.

(3) NO. Job-worker can use its own material, if required. By using his own material, the job-worker will not lose its status as job-worker.

[Alkesh Jani]

Dear Shri Kasturiji Sir,

Thanks for your reply, as this will help public at large, further, as per No.3, I think department may dispute the matter. moreover, as rightly pointed out in earlier discussion, in absence of definition of manufacturing service, lot of ambiguity is created, hope government will come out with some clarification soon.

Thanks again,

With regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

regarding your doubt to my reply in respect of Point No.3 above, pl. read the following relevant extract of Board's circular;

Job work - Issues related to job work under CGST Act, 2017 - Clarification

Circular No. 38/12/2018, dated 26-3-2018

5. Scope/ambit of job work : Doubts have been raised on the scope of job work and whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work. It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

[Alkesh Jani]

Dear Sh. Kasturiji Sir,

Thanks a lot.

With Regards

[Atul Rathod]

Dear Alkesh ji,

would like to differ for point (2) even semi finished goods can be called as manufacture if the same falls under manufacturing definition. That’s where the concept of intermediate product comes and it was exempted from excise duty if final product was liable to excise duty.

[Alkesh Jani]

Dear Sh. Atulji,

Thanks for your views. Further, goods belongs to another includes inputs, can be used by Job-worker, Sh. Kasturiji Sir, came out with the relevant portion of Circular, which is correct as per the query. Now if we peruse both the definition of Job work and manufacture, in job work ‘treatment and process’ is used while in manufacture ‘processing’ which should result in emergence of NEW product, with distinct name, character and use, so can we say that while treatment or processing, if no distinct name, character and use, are satisfied, it is Job work and if treatment or processing results in distinct name, character and use, will be termed as “manufacture”. As semi-finished goods “intermediate” will not satisfy the definition for word “USE”.

The matter may be disputed by the department for point 3 is that, Circular says that job worker can use the inputs of his own for providing the services, but as soon as goods are use it can be treated as either “Mixed” or composite” Supply. There is no clarification on this, as even circular keeping matter open by “Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case.”

Moreover, on referring the definition of Service given at Section 2(102) of the CGST Act,2017, it says “anything other than goods”. So as soon as goods are used that particular activity is out of ambit of “service”.

The reply is based on Central excise, which was production based while GST is supply based Act. Yet many things are to be settled and same are also open, I do not find harmony and matter is debatable, and if it is debatable it can be disputed. Therefore, the same was called for the insights of our experts.

Thanks,

With Regards

[KASTURI SETHI]

Goods can be called completely manufactured (finished) if these are marketable.' Marketability 'was also one of the conditions as per the judgement of Supreme Court. Since the incidence of duty has been shifted from 'manufacture' to 'supply' so no use of delving into depth. In Central Excise, every process was considered which amounted to manufacture. Semi-finished goods are also called manufactured goods but not finished goods. CE duty was chargeable even on single process. Duty was levied on 'manufacture' and was required to be paid at the time of removal.

Moreover, whether a goods is manufactured or not ;finished or not depended upon Chapter-wise and Commodity-wise. It was a sea.

[Alkesh Jani]

Dear Sh. Kasturiji Sir,

You are perfectly correct, that it was a sea, many things were settled. For say, Circulars were having binding effect on department but not on assessee. If we refer Section 168(1) of CGST Act, word "Circular" is missing, I was expecting that word may be inserted when GST Act was amended, to my surprise, nothing turned out. Even delegation of powers are made vide Circulars, and till date I am not aware of any instruction issued under Section 168. Even today if Circular is challenged and if it is struck down by courts, then what will be the situation is out of my imagination.

I thank from deep of my heart for providing such a great insights.

With Due Regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

What is job-work ? In this context one decision of AAR based on the judgement of Supreme Court. Relevant para is extracted below:-

2019 (27) G.S.T.L. 120 (A.A.R. - GST) = 2019 (7) TMI 758 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA IN RE : S.B. RESHELLERS PVT. LTD.

 

[mohan sehgal]

Experts,Please do Clarify...

Every Job Work Is a manufacturing service under GST;Then how do you differentiate between different Job works.....Machining also changes the character and shape of the Input Good...whether the ultimate TEST is the making(USE) of a Finished Good ready for selling in the market by a Job Worker,,

Suppose I am fabricating an intermediate item as per the principal's drawing and specifications,which the principal is going to process further and use as a component/part in the FINAL ITEM Ready for selling in the market;whether I come under the term JOB WORKER or a Manufacturer Job Worker...

Thanks in advance.

[mohan sehgal]

Dear Experts,

What would be the current rate of GST on plain and simple Powder Coating & Electroplating Job Works done by a Regd.Dealer for a Registerd Principal.

Thanks

[mohan sehgal]

POLITE REMINDERS TO THE EXPERTS TO RESPOND

THANKS

[Chintamani Bhide]

Mr. Mohan,

As already explained by Mr.Kasturiji, in absence of definition of 'manufacturing service' the issue is not free from doubt. The definition of job work and manufacture are going to create confusion and the comparison with excise regime is always going to pose this problem. Earlier, in service tax also the activity of manufacture was kept out of ambit of service tax & the activity of production and processing of goods on behalf of principal manufacturer where appropriate excise duty was payable by principal was also exempted under 25/2012 ST.

I do not find any reason for GST to deviate from this spirit. However, to make the point clear, let us take an example of medicine or cosmetics. If job worker manufactures a liquid or gel medicines as per the license, formula provided by principal or manufactures a shampoo and simply fills it in a container without any labeling and cartoning, returns it principal manufacturer who tests it, labels it, packs in printed carton and then in outer boxes, THEN in my opinion the job worker does production and processing of goods attracting 12% rate, although it amounts to manufacture in accepted sense & and definition of the manufacture. BUT it is not at all salable, marketable in the same condition and further processing like testing, labeling etc. are to be carried out on it.

In the given query of Rubber rings, O rings, Seals and nut/bolts, these are in themselves, finished goods, distinct products salable and marketable as such and though principal manufacturer brings those goods back to him for further use, department may stick to definition of manufacture and may say it is manufacturing service & demand 18% gst.

[mohan sehgal]

Sir,

Thanks for your reply..

However,the CBIC circular no.126/45/2019-GST dt.20th November,2019 has clearly removed the confusion,at least for the present,that the Job Worker Services provided to the Registered persons by a registered dealer shall attract 12% GST (9988);however the residue manufacturing processes carried out on goods belonging to unregistered persons will attract 18% GST;as scope of "Job work"is restircted to only those processes undertaken on goods belonging to another registered person.(9988..Engineering related services other than Bus Body building)

Thus,if any service provided by way of treatment or processing undertaken by a person on goods belonging to another registered person will be considered under the Job Work Service and taxed @12%.

Thanks.