Job work or contract manufacturing.

[Rajat Bakliwal]

My client is doing finishing ,polishing and paint work on ply (wood) table tops owned by an export firm .My client recieves these wooden tops at his factory for work through delivery challan by exporter.My client purchases polish, paint material himself and applies them over wooden tops.The cost of these paint finishing turns out to be substantial.After finishing, paint and polishing, he returns the finished goods back.What is this categorised as , a job work or contract manufacturing.Sac code 998831 or which one if it is contract manufacturing. Plz tell Gst rate also for the same Plz help.

[KASTURI SETHI]

Pl. go through the following definitions:

As per Section 2 (68) of CGST Act, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly

As per Section 2(72) of CGST Act “manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly;

In order to arrive at correct classification and correct rate of GST, we are to read above definitions with Notification No.20/19-CT(Rate) dated 30.9.19 and Board's circular no.126/45/2019-GST, dated 22-11-2019 . My views are as under:-

(i) Your client's activity (job-work) is meant for a registered person (Principal). Thus it conforms to the definition of job-work.

(ii) These job-work processes do not amount to manufacture. These activities/processes do not conform to the definition of 'manufacture' under Section 2 (72).

Thus this job-work is covered under Serial No. 26(id) of Notification No.11/17-CT(Rate) dated 28.6.17 amended from time to time up to 30.9.19 and attract GST @ 12 % under SAC 998831.

This is the present position of GST law. We are to follow this law. I am of the view that there is a flaw in this law.

[Rajat Bakliwal]

Thanks Sir for your detailed reply. I wanted to check that as substantial input paint materials, coatings are used by my client which are purchased also by him , then also it will be classified as job work without any manufacturing? The round shape raw plain ply which is provided by exporter is converted into a table top as a result of paint and polishes and texturing by my client.Plz advise further in the light of these points.Sac 998831 has two different gst rates..12 and 18%??

[KASTURI SETHI]

Q.I wanted to check that as substantial input paint materials, coatings are used by my client which are purchased also by him , then also it will be classified as job work without any manufacturing ?

Ans. Yes. See relevant para of Board's Circular No. 38/12/2018, dated 26-3-2018

5. Scope/ambit of job work : Doubts have been raised on the scope of job work and whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work. It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

[KASTURI SETHI]

Q. Plz advise further in the light of these points.Sac 998831 has two different gst rates..12 and 18%??

Ans. The confusion prevails because the phrase, "manufacturing service' has not been defined. There are two possibilities :

First possibility :

(i) If goods belong to registered person rate is 12%

(ii) If goods belong to other than registered person rate is 18 %

Second possibility

(i) If goods belong to registered person and process does not amount to manufacture rate is 12%.

(ii) If goods belong to registered person and process amounts to manufacture rate is 18 %. SAC remains the same.

You are advised to either make a representation to GST Council for clarification or file an application with the jurisdictional AAR.

[KASTURI SETHI]

W.r.t. above SAC is to be determined accordingly.

[Ganeshan Kalyani]

A round shaped plywood on the top of wooden stand or steel stand would be called as a table even if it is not been painted, designed etc. Painting is made to make the product look good and makes it attractive to the customer. Hence, the job of applying of paint by a job worker does not results into manufacturing of a product. This is my view. Had the principal manufacturer provided you the wood and you made table out of it, then one would have said that a new product emerged and it has marketability. But in your case it is not so. Hence, it is only a job work. The rate applicable for job work is 12% as rightly advised by Sri Kasturi Sir.

AI Summary

Activity of Finishing and Painting Wooden Table Tops Classified as Job Work Under GST, 12% Rate Applies, SAC 998831. A client performs finishing, polishing, and painting on wooden table tops owned by an export firm. The client purchases the materials and applies them to the table tops, which are then returned to the exporter. The query seeks to determine if this activity is classified as job work or contract manufacturing under GST. Responses clarify that this activity is job work, as it involves processing goods of another registered person without creating a new product. The applicable GST rate for this job work is 12% under SAC 998831, despite the client's use of substantial materials.