Manufacturing tea bags deemed composite supply under SAC 9988, taxed at 5%.

The ruling determined that the Applicant's service of manufacturing tea bags from HUL's physical inputs constituted a composite supply, with manufacturing tea bags as the principal supply. The service was classified under SAC 9988 and taxed at a 5% rate under the relevant Notification. The ruling's applicability to other recipients hinged on their contract specifics.

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Issues:
Classification of services provided in the packing of tea bags and the rate of GST applicable.

Analysis:
1. The Applicant, a contract packer of tea bags, sought a ruling on the classification of services provided in packing tea bags and the applicable GST rate. The Advance Ruling Authority admitted the application under Section 97(2)(a) of the GST Act as the questions raised were not previously decided by any authority, and no objection was raised by the revenue officer.

2. The Applicant's services involved assembling materials, including blended tea leaves, and classifying it as packaging service under SAC 998540. However, a recipient, HUL, suggested taxing the service under Sl No. 26(f) of the Rate Notification, applicable to manufacturing services on physical inputs owned by others for food products. The ruling focused on the specific service provided to HUL, considering the Agreement and flow chart submitted by the Applicant.

3. The Agreement between the Applicant and HUL outlined that the Applicant would manufacture and pack tea bags using raw materials owned by HUL. The processes involved in manufacturing tea bags indicated that the physical inputs were owned by HUL, making it a manufacturing service. The Applicant's service included not only manufacturing tea bags but also packaging them, forming a composite supply where manufacturing tea bags was the principal supply.

4. The definition of manufacture under the GST Act involves processing raw materials resulting in a new product. Tea bags, being distinct from tea leaves and requiring no further processing for consumption, were classified as a new product under a specific tariff item. The Applicant's service to HUL for manufacturing tea bags from HUL's physical inputs was deemed a manufacturing service under SAC 9988 and taxed under Sl No. 26(f) of the Rate Notification.

5. The ruling concluded that the Applicant made a composite supply to HUL, where manufacturing tea bags from HUL's physical inputs was the principal supply. The service was classified under SAC 9988 and taxed at a 5% rate under the relevant Notification. The applicability of the ruling to other recipients depended on the specific nature of their contracts.

6. The ruling's validity was subject to the provisions under Section 103(2) of the GST Act unless declared void under Section 104(1).

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