2021 (1) TMI 648 - AAR - GST

GST Rates for Electroplating Services Updated: 12% for Registered, 18% for Unregistered

The services provided by M/s. ENP Techno Engineers, involving Electroplating surface coating and Electroless Nickel Plating, were classified under item ... Manufacturing services on physical inputs (goods) owned by others - Services by way of job work - Heading 9988 - distinction between manufacture and manufacturing services - Rule 3 of the General Rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (preference for the most specific description) - job work as defined in Section 2(68) of the CGST Act, 2017 - Circular No.126/45/2019-GST clarifying classification and rate applicabilityManufacturing services on physical inputs (goods) owned by others - Services by way of job work - distinction between manufacture and manufacturing services - Rule 3 of the General Rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (preference for the most specific description) - Classification of electroplating surface coating and electroless nickel plating services under Entry No.26 - whether they fall under item (id) (job work) or item (iv) (manufacturing services) of Heading 9988 - HELD THAT: - The Authority analysed the terms and the notifications amending Entry No.26 of Heading 9988 and observed that 'manufacturing services' is conceptually distinct from 'manufacture' and denotes services related to or essential for the process of manufacture. Electroplating and electroless nickel plating alter chemical, physical and mechanical properties, and are often integral, terminal processes in rendering a finished product. Applying the interpretative Rule 3 preference for the most specific description, the Authority found that item (iv) (manufacturing services on physical inputs owned by others, other than specified exclusions) provides a more specific and appropriate description of the applicant's services than the general job-work entry at item (id). The Authority therefore classified the applicant's services under item (iv) of Entry No.26 of Notification No.11/2017-Central Tax (Rate) (as amended). [Paras 11, 12]Services of electroplating surface coating and electroless nickel plating are classifiable under item (iv) of Entry No.26 (Heading 9988) rather than item (id).Heading 9988 - Circular No.126/45/2019-GST clarifying classification and rate applicability - job work as defined in Section 2(68) of the CGST Act, 2017 - GST rate applicable on the classified services for specified periods - HELD THAT: - Having classified the services under item (iv), the Authority noted the historical and amended rates in Entry No.26 and the Board's clarification by Circular No.126/45/2019-GST. For the period up to 21.11.2019 the applicable rate under item (iv) (manufacturing services on physical inputs owned by others) was 18% (9% CGST + 9% SGST). The Board's Circular and the insertion of item (id) effective 01.10.2019 resulted in a re-demarcation of job work entries and, as clarified on 22.11.2019, reduced the rate applicable to job-work services supplied to registered persons. Consequently, for the applicant the GST incidence from 22.11.2019 onwards is 12% (6% CGST + 6% SGST) where the input is supplied by a registered person, and 18% (9% CGST + 9% SGST) where the input is supplied by an unregistered person. [Paras 13, 14]GST at 18% (9% + 9%) up to 21.11.2019; from 22.11.2019 onwards, 12% (6% + 6%) where inputs are supplied by a registered person and 18% (9% + 9%) where inputs are supplied by an unregistered person.Final Conclusion: The Authority ruled that the applicant's electroplating and electroless nickel plating services are classifiable under item (iv) of Entry No.26 (Heading 9988). GST at 18% applied up to 21.11.2019; from 22.11.2019 onwards the rate is 12% for services supplied where inputs are provided by registered persons and 18% where inputs are provided by unregistered persons. Issues Involved:1. Classification of services provided by the applicant.2. Applicability of GST rates on the services provided.Issue-wise Detailed Analysis:1. Classification of Services Provided by the Applicant:The applicant, M/s. ENP Techno Engineers, provides Electroplating surface coating and Electroless Nickel Plating services. The core issue is whether these services fall under item (id) or item (iv) of Entry No.26 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 as amended. The applicant contends that their services should be classified under item (id) as job work, which does not amount to manufacture, and thus should attract a GST rate of 6%. They argue that their process does not create a new product but merely enhances the durability of the existing material.The judgment notes that the term 'manufacturing services' is not defined in the GST Act, but it is distinct from 'manufacture.' Manufacturing services are related to the process of manufacture or assist in the process of manufacturing goods. The process of Electroplating surface coating and Electroless Nickel Plating is essential to the manufacturing process, making the product a finished product. Therefore, these services are classified under item (iv) of Entry No.26 as 'Manufacturing services on physical inputs (goods) owned by others.'2. Applicability of GST Rates on the Services Provided:The judgment examines Notification No.11/2017-Central Tax (Rate) and its amendments, concluding that the services provided by the applicant fall under item (iv) of Entry No.26. The GST rate for item (iv) is 18% (9% SGST + 9% CGST). The applicant's confusion arises from the insertion of item (id) in Notification No.20/2019-Central Tax (Rate) effective from 01.10.2019, which specifies a GST rate of 12% (6% SGST + 6% CGST) for job work services.The judgment clarifies that for the period up to 21.11.2019, the applicable GST rate is 18% under item (iv). From 22.11.2019 onwards, the GST rate is 12% for services provided to registered persons and 18% for services provided to unregistered persons, as clarified by Circular No.126/45/2019-GST dated 22.11.2019.Ruling:The services supplied by the applicant fall under item (iv) of Entry No.26 of Notification No.11/2017-Central Tax (Rate) as amended. The GST liability is 18% (9% SGST + 9% CGST) up to 21.11.2019. From 22.11.2019 onwards, the GST liability is 12% (6% SGST + 6% CGST) for services supplied to registered persons and 18% (9% SGST + 9% CGST) for services supplied to unregistered persons.