Chocolate and confectionery manufacturing services classified as job work under GST at 5% tax rate

The AAR Telangana ruled that chocolate and confectionery manufacturing services constitute job work under GST when performed on inputs owned by another registered person. The applicant's manufacturing activities for chocolate, confectionery, and sugar-coated chocolate products were classified as supply of services under SAC 998816 (Other food product manufacturing services), falling under the broader category SAC 9988 for outsourced manufacturing processes. The applicable tax rate was determined to be 2.5% CGST and 2.5% SGST, totaling 5% GST on these job work services.

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Issues Involved:
1. Determination of the GST tax rate applicable to Service Accounting Code (SAC) 998816.

Issue-wise Detailed Analysis:

1. Determination of the GST tax rate applicable to Service Accounting Code (SAC) 998816:

The applicant, M/s. Gandour India Food Processing Private Limited, sought an advance ruling to determine the GST tax rate applicable to SAC 998816. They are engaged in job work for manufacturing chocolates, categorized under Chapter 19 of the Customs Tariff Act, with inputs provided by the job work receiver. The applicant was following a 4-digit SAC code and, as per Notification 78/2020, was required to mention a 6-digit SAC code on their service invoices from 01-04-2021. The SAC code applicable to them is 998816, but they could not find a separate tax rate for this 6-digit code in the service code classification.

Applicant's Interpretation:
The applicant referred to rate notification 31/2017, which specifies a 5% tax rate for services under Heading 9988, clause (f), covering all food and food products falling under Chapters 1 to 22 of the Customs Tariff Act. They argued that their products fall under Chapter 19 and thus should be taxed at 5%. However, they sought clarification on the tax rate for the 6-digit code 998816.

Personal Hearing:
During the personal hearing, the applicant reiterated their position, emphasizing that the 6-digit SAC code 998816 falls under the broader 4-digit code 9988, which has a tax rate of 5%. They argued that the tax rates should have been specified simultaneously with the requirement to use the 6-digit code.

Discussion & Findings:
The authority examined whether the applicant's activities qualify as supply of services. According to Para 3 of Schedule II of the CGST Act, any treatment or process applied to another person's goods is considered a supply of services. The applicant's job work of manufacturing chocolates falls under SAC 9988, which includes manufacturing services on physical inputs owned by others. The activity is thus classified as a supply of services.

Legal Provisions:
The applicable rate of service tax is outlined in Notification No. 11/2017-CT(R), dated 28-06-2017, and its subsequent amendments. The relevant entries for SAC 9988 specify a 2.5% CGST and 2.5% SGST rate for job work services related to food products falling under Chapters 1 to 22 of the Customs Tariff Act.

Conclusion:
The authority ruled that the SAC for the applicant's services is 998816, categorized as "Other food product manufacturing services." The applicable GST tax rate for SAC 998816 is 2.5% CGST and 2.5% SGST.

Ruling:
The GST tax rate on Service Accounting Code 998816 is 2.5% CGST and 2.5% SGST.

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