2019 (5) TMI 904 - AAR - GST

GST on Job Work Services for Specific Goods Clarified by Court

The court held that the activities conducted by the petitioner, a job worker, on goods supplied by the principal amount to job work as defined in the GST ... Service by way of job work - SAC 9988 - characterisation as an outsourced portion or complete outsourced manufacturing process - valuation of job work services based on service charge (including recoveries) - applicability of Entry No.26(i)(b) of Notification No.11/2017 - Central Tax (Rate) (taxability at 5% GST) - job work on goods falling under Chapters 50 to 63 of the First Schedule to the Customs Tariff Act, 1975Service by way of job work - SAC 9988 - characterisation as an outsourced portion or complete outsourced manufacturing process - valuation of job work services based on service charge (including recoveries) - Whether the processes and treatments carried out by M/s. Irene Rubbers on materials supplied by the principal amount to job work. - HELD THAT: - The Authority applied the statutory definition of job work and relevant administrative clarification to hold that manufacturing services performed on physical inputs owned by another registered person constitute services by way of job work. The Authority noted that such services are outsourced portions of a manufacturing process or a complete outsourced manufacturing process, that the output remains owned by the principal, and that the service provider's liability to tax and invoicing obligations arise from supply of services. The value of the job work service is determined by the service charge and includes any goods or services used by the job worker insofar as they are recovered from the principal. On these foundations the Authority classified the petitioner's activity under SAC 9988 as job work.Yes; the processes and treatments described amount to job work and are covered under SAC 9988.Applicability of Entry No.26(i)(b) of Notification No.11/2017 - Central Tax (Rate) (taxability at 5% GST) - job work on goods falling under Chapters 50 to 63 of the First Schedule to the Customs Tariff Act, 1975 - Whether job work carried out on goods falling under HSN 5702 and 5703 is taxable at the rate specified in Entry No.26(i)(b) of Notification No.11/2017-Central Tax (Rate). - HELD THAT: - The Authority observed that the raw materials and inputs supplied by the principal (including carpets, coir and related items) fall within Chapters 50 to 63 of the First Schedule to the Customs Tariff Act, 1975. Entry No.26(i)(b) of Notification No.11/2017-Central Tax (Rate) applies to services by way of job work in relation to textiles and textile products falling under Chapters 50 to 63. Applying that entry to the petitioner's facts, the Authority concluded that the job work services performed on materials covered by HSN 5702 and 5703 attract the concessional tax rate prescribed by the entry. The Authority thereby determined the central and state components of tax accordingly.Yes; job work on materials falling under HSN 5702 and 5703 is taxable under Entry No.26(i)(b) of Notification No.11/2017-Central Tax (Rate) at the concessional rate (5% GST as 2.5% CGST and 2.5% SGST).Final Conclusion: The Authority ruled that the petitioner's operations constitute services by way of job work (classified under SAC 9988) and that job work performed on materials falling under HSN 5702 and 5703 is taxable under Entry No.26(i)(b) of Notification No.11/2017-Central Tax (Rate) at the concessional GST rate (2.5% CGST and 2.5% SGST). 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 workRs.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)Rs.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 workRs.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)Rs.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.