Job work on metallic film rolls for zari production attracts 12% GST, not 5% textile rate under notification 20/2019-CT(Rate)

AAR Gujarat ruled that job work involving cutting metallic film rolls for zari/metallic yarn production attracts 12% GST under serial no. 26(id) of notification 20/2019-CT(Rate). The applicant failed to establish that metallic film rolls qualify as textile products under chapters 50-63 of Customs Tariff Act 1975, making them ineligible for the 5% GST rate applicable to textile job work services under serial no. 26(i)(b). The service falls under general job work category at 12% GST rate.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

a) What is the applicable GST rate for job work involving the cutting of metallic film rolls used to manufacture zari/metallic yarn for sarees under the Central Goods and Services Tax (CGST) Act, 2017Rs.

b) Does the job work service qualify for the concessional GST rate of 5% applicable to certain textile job work services, given its direct use in the textile manufacturing processRs.

c) Alternatively, should the service be classified under the 12% GST rate applicable to job work involving textile processing as per Notification No. 20/2019-CT (Rate)Rs.

d) Or, should the service be classified under the general job work category attracting 18% GSTRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue a), b), and c): Applicable GST rate for job work involving cutting of metallic film rolls used in textile manufacturing

Relevant legal framework and precedents:

The relevant provisions include the definitions under the CGST Act, 2017: Section 2(68) defining "job work" as any treatment or process undertaken on goods belonging to another registered person, and Section 2(72) defining "manufacture" as processing of raw material or inputs resulting in a new product with distinct name, character, and use.

Notification No. 11/2017-CT (Rate) dated 28.6.2017 prescribes GST rates for various job work services under heading 9988 (Manufacturing services on physical inputs owned by others). Specifically:

• Serial No. 26(i)(b) imposes GST @ 5% on job work services related to textiles and textile products falling under chapters 50 to 63 of the Customs Tariff Act, 1975 (CTA).
• Serial No. 26(id) imposes GST @ 12% on job work services other than those specified in 26(i), (ia), (ib), (ic), and (ica).
• Serial No. 26(iv) imposes GST @ 18% on manufacturing services on physical inputs owned by others, excluding the categories listed above.

CBIC Circular No. 126/45/2019-GST dated 22.11.2019 clarifies that serial No. 26(id) covers job work services as defined under Section 2(68) of CGST Act, i.e., services on goods belonging to another registered person, while serial No. 26(iv) covers services on goods owned by unregistered persons.

The Supreme Court in All India Federation of Tax Practitioners v. Union of India held that the phrase "in relation to" must be interpreted in context and cannot be given an overly wide meaning.

Court's interpretation and reasoning:

The applicant's job work involves cutting metallic film rolls supplied by their clients, who are registered persons under GST. The metallic film rolls are used to produce zari/metallic yarn, which is subsequently used in saree manufacturing.

The AAR examined whether the metallic film rolls fall within the definition of "textile and textile products" under chapters 50 to 63 of the CTA, which would entitle the applicant to the 5% GST rate under serial No. 26(i)(b).

The applicant failed to establish that the metallic film rolls are classified under chapters 50 to 63 of the CTA, as the delivery challan and invoices did not specify the HSN code or confirm that the goods are textiles or textile products.

Applying the Supreme Court's guidance, the phrase "in relation to textiles and textile products" requires the goods themselves to be covered under the relevant chapters. Since the metallic film rolls are not proven to be textile products, the concessional 5% rate under serial No. 26(i)(b) does not apply.

Since the clients are registered persons, the 18% GST rate under serial No. 26(iv), which applies to goods owned by unregistered persons, is also inapplicable.

Therefore, the job work falls under serial No. 26(id), which covers job work services other than those specified in serial No. 26(i) and others, attracting GST @ 12%.

Key evidence and findings:

• Delivery challan and invoice provided by the applicant showed receipt and return of metallic film rolls but did not specify HSN codes or confirm classification under textile chapters.
• Clients of the applicant are registered under GST.
• The applicant was charging GST at 12% in their invoices, consistent with serial No. 26(id).

Application of law to facts:

The legal definition of job work and the classification of goods under the Customs Tariff Act were applied to determine the correct GST rate. The absence of evidence that metallic film rolls fall under textile chapters meant the concessional 5% rate was not applicable. The registered status of clients excluded the 18% rate. Hence, the 12% rate under serial No. 26(id) was applicable.

Treatment of competing arguments:

The applicant argued for the 5% rate based on the end-use of the metallic film rolls in textile manufacturing. The AAR rejected this, emphasizing the need to classify the goods themselves under the relevant chapters, not merely their use downstream. The circular and Supreme Court precedent supported this narrower interpretation.

Issue d): Applicability of 18% GST rate under general job work category

The 18% GST rate under serial No. 26(iv) applies to manufacturing services on physical inputs owned by persons other than those registered under GST. Since the applicant's clients are registered persons, this category does not apply.

3. SIGNIFICANT HOLDINGS

The AAR held:

"The applicable GST rate for job work involving the cutting of metallic film rolls is 12% in terms of serial No. 26(id) of notification No. 11/2017-CT (R) dated 28.6.2017, as amended."

"No, the service does not qualify for GST at the rate of 5% in view of (a) above."

"The service provided by the applicant is classifiable under serial No. 26(id) of the notification No. 11/2017-CT (R), ibid and is leviable to GST @ 12%."

"No, the services provided by the applicant would not be classified under the general job work category at 18%."

The ruling clarifies that the concessional GST rate of 5% for textile-related job work applies only if the goods subjected to job work are themselves classified under chapters 50 to 63 of the Customs Tariff Act. The end-use of the goods in textile manufacturing is insufficient to attract this rate. Job work services on goods belonging to registered persons but not classified as textiles fall under the 12% GST rate category. The general 18% GST rate applies only when the goods are owned by unregistered persons.

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