Bonding imported carbon strips to customer-owned synchronizer cores classified as job work services under SAC 9988

AAR Tamil Nadu ruled that bonding imported carbon friction strips to customer-owned synchronizer cores constitutes job work services under SAC 9988, not composite supply of goods. The Authority determined this activity falls under Schedule II of CGST Act 2017 as supply of services since the synchronizer cores remain customer property throughout the process. The ruling clarified that using own materials (carbon strips) while performing job work doesn't alter the service nature, and no separate supply of goods exists as strips aren't invoiced separately. The concept of composite supply was deemed inapplicable since only one taxable supply occurs - the job work service itself.

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Issues Involved:

1. Whether the activity undertaken by the Applicant amounts to supply of service (job-work service) under the accounting code 9988.
2. Whether the bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708.

Summary:

Issue 1: Supply of Service (Job-Work Service) under SAC 9988

The Applicant is engaged in the activity of binding carbon friction strips, imported from their Associate Company in the USA, on metal components (Synchronizer Core) received from customers under a job work challan. The resultant product, Synchronizer ring, is then cleared back to the customer under a tax invoice. According to Section 97(2) of the CGST/TNGST Act, this activity falls within the scope of Section 97(2)(a) of the CGST/TNGST Act, 2017, making the application admissible.

The activity undertaken by the Applicant is classified as a supply of services under Sl. No. 3 of Schedule II to the CGST Act, 2017, which states, "Any treatment or process which is applied to another person's goods is a supply of services." This activity falls under SAC 9988, which covers manufacturing services on physical inputs owned by others. The definition of job work under Section 2(68) of the CGST Act, 2017, supports this classification, as the Synchronizer core belongs to the customer throughout the process.

CBIC Circular No. 38/12/2018-GST dated 26.03.2018 clarifies that job workers can use their own goods for providing job work services. Therefore, the usage of imported carbon strips by the Applicant does not alter the nature of the services provided as job work services.

Issue 2: Composite Supply of Goods under CTH 6815 or 8708

The Applicant questioned whether the bonding of imported carbon friction strips to Synchronizer cores received from customers would amount to composite supply of goods under CTH 6815 or 8708. The ruling clarifies that the entire activity undertaken by the Applicant is a supply of service (job work service). The process involves receiving the Synchronizer Core from the customer, bonding the imported carbon lining, and sending the resultant product back to the customer under a tax invoice and E-way bill.

The Applicant's claim that there are two supplies involved (supply of specialized carbon friction strips and supply of services) is incorrect. The carbon strips are not sent separately under an invoice; they are bonded to the Synchronizer core belonging to the customer. The value of the service includes the value of the carbon strips, job charges, and profit.

Section 7(1A) of the CGST Act, 2017, and Schedule II clearly state that the process undertaken on another person's goods is a supply of service. Therefore, the concept of composite supply does not apply. The job worker can use their own goods for providing job work, and the valuation of such services is as per Section 15 of the CGST Act.

Ruling:

1. The activity undertaken by the Applicant of bonding imported carbon friction strips to Synchronizer core received from customers amounts to supply of job work services under SAC 9988.
2. The bonding activity does not amount to composite supply of goods under CTH 6815 or 8708, as discussed in para 6.3 above.

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