Applicability of GST on manufacturing activity done by contractor

[MohanLal tiwari]

Dear Panelists,

We are manufacturer of castings / machinery parts (mainly for Railways) falling under 8607. In our factory premises, we are providing all required materials, machinery & equipment etc and getting in-process manufacturing activities done through contractors for various operation like molding / finishing / machining etc. During Excise & Service tax regime, such services were not attributable to service tax.

Now, most of contractors are GST compliance and issuing invoices charging GST @18% which is getting accumulated with us by way of ITC.

Kindly advise how far it is correct to charge GST for in-process manufacturing activities getting done by the contractors. Also advise remedy to avoid charging GST as the ITC is getting accumulated with us.

[KASTURI SETHI]

In my view, it is a case of Man Power Supply. Contractor is supplier. Manpower is no more under RCM.

[MohanLal tiwari]

Dear Kalyani sir,

Thanks for your suggestion, but in our case its not labor supply contract. The contract is for in-process manufacturing operation. We really want to avoid applicability of GST. Kindly suggest.

[KASTURI SETHI]

Dear Querist, Has Contractor not supplied labour to your factory ? Whatever purpose may be.

[KASTURI SETHI]

Supposing it is job work, even then it is taxable as under GST job work is taxable supply of service. In pre-GST era, Central Excise duty was leviable depending upon the nature of processes. GST cannot be avoided in any situation.

[MohanLal tiwari]

Dear Sethi Sir,

Thanks for clarification.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Sethi. Avoiding to charge the tax is not the objective of GST laws. You can plan according to the provisions of tax and not with intention to avoid tax.

[MohanLal tiwari]

Govindrajan Sir,

Thanks. I appreciate your views.

[KASTURI SETHI]

Tax avoidance is legal but tax evasion is illegal.

AI Summary

GST applicability on contractor in process manufacturing: treated as taxable supply or job work, attracting GST and ITC consequences. Applicability of GST arises where a manufacturer engages contractors on its premises for in process manufacturing; contractors' invoices charging tax result in accumulation of Input Tax Credit. The activity is characterised as a taxable supply of services-either manpower supply if labour is supplied on site, or job work-and therefore attracts GST; liabilities should be met and operations planned under the GST framework rather than to avoid tax.