2020 (3) TMI 241 - AAR - GST

Ruling on GST Rate & SAC for Electroplating Services: Clarity on Taxation for Manufacturers

The case involved determining the GST rate and Service Accounting Code (SAC) for electroplating services provided by a partnership firm. The firm's ... Supply of service - Manufacturing services on physical inputs owned by others - Job work - Classification under SAC 9988 - Rate of tax under Notification No. 11/2017-C.T.(Rate) as amendedSupply of service - Manufacturing services on physical inputs owned by others - Classification under SAC 9988 - Job work - Classification of the electroplating activity carried out by the applicant - HELD THAT: - The Authority examined the facts that the applicant receives customers' components by delivery challan, performs electroplating as per the customers' specifications and returns the same to the customers who retain ownership. Relying on Schedule II para 3 which treats any treatment or process applied to another person's goods as a supply of services, and upon the Explanatory Notes to Heading 9988 which describe outsourced manufacturing services performed on physical inputs owned by others, the Authority held that the electroplating activity is a service characterized as an outsourced portion of a manufacturing process. The activity therefore falls within SAC 9988 and, where performed by a registered person on goods belonging to another registered person, also constitutes job work as defined in Section 2(68) of the CGST Act.Electroplating undertaken by the applicant is a supply of service classifiable under Heading 9988 (Manufacturing services on physical inputs owned by others).Rate of tax under Notification No. 11/2017-C.T.(Rate) as amended - Effect of amendments to SI. No. 26 - Distinction as to ownership of goods (registered vs unregistered) - Applicable GST rate for the electroplating (job work) service for the periods before and after 01.10.2019 - HELD THAT: - The Authority reviewed the sequence of amendments to entry SI. No. 26 of Notification No. 11/2017-C.T.(Rate) and subsequent notifications including Notification No. 20/2019 which altered the entries and rates applicable to manufacturing services on physical inputs owned by others. For the period up to 30.09.2019 the entry applicable to SI. No. 26 provided a 9% rate irrespective of whether the goods belonged to a registered or unregistered person. With effect from 01.10.2019, Notification No. 20/2019 inserted item 26(id) which prescribes a differentiated rate: where the goods belong to another registered person, job work services under the relevant entry attract 6% CGST (and corresponding SGST), whereas services in respect of goods owned by unregistered persons continue to attract 9% CGST (and corresponding SGST) under SI. No. 26(iv). The Authority applied these notifications to the facts of the case and determined the applicable rates accordingly.For the period upto 30.09.2019 the applicable rate is 9% CGST (with corresponding SGST) under the SI. No. 26 entry; from 01.10.2019, where the goods belong to another registered person the applicable rate is 6% CGST (with corresponding SGST) under SI. No. 26(id), and where the goods belong to an unregistered person the rate remains 9% CGST (with corresponding SGST) under SI. No. 26(iv).Final Conclusion: The Authority ruled that the applicant's electroplating activity is a supply of service classifiable under SAC 9988 (manufacturing services on physical inputs owned by others). The GST rate is 9% CGST (and corresponding SGST) upto 30.09.2019; with effect from 01.10.2019 the rate is 6% CGST (and corresponding SGST) when the goods belong to another registered person, and 9% CGST (and corresponding SGST) when the goods belong to an unregistered person. Issues Involved:1. Rate of Tax on GST for Electroplating2. SAC Number for ElectroplatingIssue-Wise Detailed Analysis:1. Rate of Tax on GST for Electroplating:The applicant, a partnership firm engaged in electroplating, sought clarity on the rate of GST applicable to their services. The firm receives components from customers, performs electroplating, and returns the finished products. The process involves various steps, including acid cleaning and quality checks.Upon examination, it was determined that the applicant's activities fall under the category of 'Supply of Service' as per Para 3 of Schedule II of the CGST Act, which states, 'Any treatment or process which is applied to another person’s goods is a supply of services.'The relevant Service Accounting Code (SAC) for electroplating was identified as SAC 9988, which pertains to 'Manufacturing services on physical inputs owned by others.' This category includes services performed on physical inputs owned by units other than the service provider, characterizing them as outsourced portions of a manufacturing process.The applicable rate of GST for such services was determined based on several notifications:- Notification No. 11/2017-C.T.(Rate) dated 28.06.2017: Initially, the rate was set at 9% CGST and 9% SGST for manufacturing services on physical inputs owned by others.- Amendments through subsequent notifications: Various amendments were made, including Notification No. 20/2019-C.T.(Rate) dated 30.09.2019, which reduced the rate to 6% CGST and 6% SGST for job work services provided to registered persons.Summary of Applicable Rates:- Up to 30.09.2019: 9% CGST and 9% SGST irrespective of whether the goods are owned by registered or unregistered persons.- From 01.10.2019:- For goods belonging to registered persons: 6% CGST and 6% SGST.- For goods owned by unregistered persons: 9% CGST and 9% SGST.2. SAC Number for Electroplating:The SAC number for the electroplating services provided by the applicant was identified as SAC 9988, which covers 'Manufacturing services on physical inputs owned by others.' This classification is appropriate as the electroplating process performed by the applicant is a part of the manufacturing process of their customers, who retain ownership of the components throughout the process.Ruling:1. The activity of electroplating undertaken by the applicant is classified under SAC 9988 - 'Manufacturing services on Physical Inputs owned by others.'2. The applicable rate of tax:- Up to 30.09.2019: 9% CGST and 9% SGST.- From 01.10.2019:- For goods belonging to registered persons: 6% CGST and 6% SGST.- For goods owned by unregistered persons: 9% CGST and 9% SGST.This ruling provides clarity on the GST rate applicable to the electroplating services provided by the applicant and the appropriate SAC classification for these services.