GST Rate for Job Work

[Kaustubh Karandikar]

XYZ doing the PCB Assembly job work where the PQR is sending XYZ the raw material (Electronic components, bare PCB and all) in kit format. XYZ are doing assembly and soldering and sending it back to PQR. Both XYZ and PQR are registered with GST. What is the GST Rate that XYZ should charge to PQR for this job work?

[Kaustubh Karandikar]

Shri Kasturi ji

I fully appreciate your views. my personal view is it will attract 18% based on wordings of noification. I also fully agree that circular don't have any legal force. But when a circular suits a taxable person, he should take advantage of the same.

[Amit Agrawal]

Dear Shri Kasturi Sethi Ji,

W.r.t. your post No. 18, thank you very much for pointing out an important advance ruling (in the context of our discussion here) in case of ENP TECHNO ENGINEERS - 2021 (1) TMI 648 - AUTHORITY FOR ADVANCE RULING, GUJARAT

Relevant observations are from Para 12.3 of said ruling as follows:

".........We also fully agree with the view of the applicant that the service provided by the applicant does not amount to manufacture, but the word mentioned in item(iv) of aforementioned entry is ‘manufacturing services’ and not ‘manufacture’. ‘Manufacturing services’ are completely different from ‘manufacture’. Since the definition of ‘manufacturing services’ is not available under the GST Act, 2017, the definition of the same will have to be derived in generic terms or from common parlance. We are of the opinion that ‘manufacturing services’ is not akin to ‘manufacture’ but are services which are related to the process of manufacture or assist in the process of manufacture of goods"

In said AAR ruling subject matter was 'services of Electroplating surface coating and Electroless nickel plating' - a process which does NOT amounts to 'manufacture' in erstwhile excise regime.

In other words, as per your views, this process by the job-worker is 'Non-manufacturing services' and thereby, you feel that same cannot fall under HSN 9988 or under Serial No. 26 of the concerned notification No. 11 / 2017.

But, said AAR is categorical in its findings that this process indeed falls under under 'Manufacturing services on physical inputs owned by others / HSN 9988', also under 'Serial No. 26 of the concerned notification No. 11 / 2017'. And applicable GST rate for the job-worker is 12% from 01.10.2019 onwards (& 18% for prior period).

W.r.t. issue in classification between item (id) & (iv) under heading 9988 at serial No. 26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017, I do not see any dispute what-so-ever as description of item (iv) specifically excludes item (id) from its scope.

And, Board's Circular no.126/45/19-GST dated 22.11.19 simply clarifies this difference in my view and there is no camouflage in my respectful submission.

It is worth noting that for coming to its conclusions, concerned AAR missed the important point that 'Explanatory Notes to the Scheme of Classification of Services' explains 'Manufacturing services on physical inputs owned by others' falling under HSN 9988 (i.e. In colum No. 2 of the Table at serial No. 26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017).

As this aspect & implications thereto is duly covered in my earliest posts, I am not repeating the same here. And these explanatory note is directly relevant while interpreting "Chapter”, “Section” or “Heading” given (i.e. In colum No. 2 of the Table) in Notification 11/2017 CGST dtd. 28.06.2017 as per Explanation No. (ii) of Clause 4 of very same notification.

In summary, whatever logically stated in above-said AAA ruling (about what falls under 'Manufacturing services on physical inputs owned by others / HSN 9988' and also under 'Serial No. 26 of the concerned notification No. 11 / 2017') fully matched my views.

So long as activities (i.e. treatment / process undertaken) of job-worker are part / portion / assist of any manufacturing of goods, gst @ 12% is applicable from 01.10.2019 onwards (i.e. even when activities of job-worker- by themselves - does not amount to manufacture).

This is the crux I take from this AAR ruling.

And if one add 'explanatory note and its implications' - as explained by me in earlier posts - to the logic used by AAR, this further strengthen above views taken in said AAA ruling.

P.S. If activities of job-worker amounts to 'manufacture', we both agree that GST @ 12% (& NOT 18%) will be applicable on the job-work charges w.e.f. 01.10.2019. Hence, this part is not covered in the above post.

Thanks and Regards,

Amit Agrawal

[Amit Agrawal]

In continuation of my last post:

Also, kindly see 2021 (12) TMI 607 - AAR ruling IN RE: M/S. OERLIKON BALZERS INDIA PVT. LTD., where while answering Question No. 1& 2, AAR explained why & when very same activities by very same person falls under the heading ''Manufacturing services on physical inputs owned by others / HSN 9988" and when same does fall in that heading (i.e. when same is non-manufacturing services, generally speaking), respectively.

As per this ruling - very broadly speaking - Objective / intention of transaction (i.e. intention is to manufacture or not) is important factor to determine the process of a service-provider is ''Manufacturing services on physical inputs owned by others / HSN 9988" and NOT the question whether process of the service-provider amounts to manufacture or not.

Again, GST @ 12% is held as applicable for the "job-worker" (i.e. while answering the question No. 1) even though his process / treatment was admittedly does not amount to manufacture.

[Amit Agrawal]

Correction in earlier Post No. 23:

In case of ENP TECHNO ENGINEERS - 2021 (1) TMI 648 - AUTHORITY FOR ADVANCE RULING, GUJARAT (2021 (1) TMI 648), AAR has held that GST @ 12% is applicable from from 22.11.2019 onwards (i.e. from date of Circular no.126/45/19-GST dated 22.11.19) and not from 01.10.2019 (i.e. date of relevant notification).

Other than this aspect, whatever logically stated in above-said AAA ruling (about what falls under 'Manufacturing services on physical inputs owned by others / HSN 9988' and also under 'Serial No. 26 of the concerned notification No. 11 / 2017') fully matched my views.

And as explained earlier w..r.t. issue in classification between item (id) & (iv) under heading 9988 at serial No. 26 of Notification No.11/2017-Central Tax(Rate) dated 28.06.2017, I do not see any dispute what-so-ever as description of item (iv) specifically excludes item (id) from its scope. And, Board's Circular no.126/45/19-GST dated 22.11.19 simply clarifies this difference in my view and there is no camouflage in my respectful submission.

[KASTURI SETHI]

Sh.Kaustubh Karandikar Ji,

Sir, Have you perused the decision of AAR, Maharashtra In Re : S.B.Shellers (P) Ltd. reported as 2021 (10) TMI 1160 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA (published in the journal for the week of February 8-14, 2022) ? Second para refers.

[Amit Agrawal]

In AAR ruling in RE: M/S. S.B. RESHELLERS PVT. LTD. (2021 (10) TMI 1160), following Para is worth noting:

"5.11.6 In view of the above discussions, we hold that the subject activity of re shelling old and worn out and unusable sugar mill rollers is an activity of repair and squarely falls under SAC 9987. Since the said activity of reshelling of old sugar mill rollers is neither manufacturing nor job work, it will continue to attract 18% GST and not 12% GST in terms of clause (id) of Sr. No.26 of Notification No.11/2017-CT(R), dt.28.06.2017."

[KASTURI SETHI]

Yes, Sir. Both aspects (non-manufacturing service and non-job-work) are covered in this decision of AAR.

[Amit Agrawal]

In AAR ruling in IN RE: M/S. IONBOND COATINGS PVT. LTD. 2022 (3) TMI 540 which specifically refers to 'Explanatory Note/s', following Para/s are worth noting:

"2.9 Section note to SAC 9988 Manufacturing services on physical inputs owned by others: The services included under Heading 9988 are performed on physical inputs owned by units other than the units providing the service. As such, they are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. Since this Heading covers manufacturing services, the output is not owned by the unit providing this service. Therefore the value of the services in this Heading is based on the service fee paid, not the value of the goods manufactured.

2.10 Hence, SAC Code 9988 also includes part of the process from entire manufacturing process. It is not relevant whether the job worker process amounts to manufacturer or not.

.............

2.13 In view of the above, it may be seen that there is a clear demarcation between scope of the entries at item (id) and item (iv) under heading 9988 of Notification No. 11/2017- Central Tax (Rate) dated 28-06-2017. Entry at item (id) covers only job work services as defined in section 2 (68) of CGST Act, 2017, that is, services by way of treatment or processing undertaken by a person on goods belonging to another registered person. On the other hand, the entry at item (iv) specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under the CGST Act."

[Amit Agrawal]

Above are submissions made by the applicant. Followings are some important findings given by AAR in said ruling, which are worth noting:

"5.6 According to the applicant's submissions no new products emerge after the subject process been carried out by the applicant. The basic characteristics of the product have not been lost. Thus, in view of the contention of the applicant that they are a jobworker, we now discuss the specific issue hereon.

5.7 Job work is just a process undertaken by a job worker on goods belonging to a principal. Job work may or may not amount to manufacture. Further, a job worker may or may not use some portion of his material. Job work has been defined under section 2(68) of the CGST Act, 2017 to mean 'any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly'.

5.8 Whereas the term 'manufacture' has been defined under section 2(72) of the GST Act, 2017 to mean “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”

5.9 The product that comes into emergence after the coating process is not the different product but the process undertaken by them only enhances the performance of the said products. No new products emerge after the subject coating process has been carried out."

AI Summary

Job work classification governs GST treatment; outsourced manufacturing services on inputs owned by others attract concessional tax under HSN 9988.
Where a registered principal supplies inputs to a registered job-worker for assembly, the applicable rate depends on classification: services characterized as Manufacturing services on physical inputs owned by others (HSN 9988) are treated as outsourced manufacturing and, per explanatory notes and relevant circulars and advance rulings, attract the concessional rate based on the service fee. Distinct entries exclude certain job-work or repair activities, so non-job-work or repair services may fall outside that concessional entry and attract a different rate.