NON-MANUFACTURING SERVICES CANNOT BE COVERED UNDER HEADING NO.9988 (SAC) OF NOTIFICATION NO.11/17-CT(R) WHICH IS SPECIFICALLY MEANT FOR MANUFACTURING SERVICES. ______ NON-MANUFACTURING SERVICES CANNOT BE COVERED UNDER HSN HEADING NO.9988 MEANT FOR MANUFACTURING SERVICES_______________

[KASTURI SETHI]

     NON-MANUFACTURING SERVICES CANNOT BE COVERED UNDER  HSN HEADING NO.9988 (SAC) OF NOTIFICATION NO.11/17-CT(R) WHICH IS SPECIFICALLY MEANT FOR MANUFACTURING SERVICES.                                          

     This article is in the interest of those  job workers who are engaged in the job-work for those activities/processes/services which do not amount to manufacture.  It is  crystal clear that HSN Headings 9988 & 9989 cover only manufacturing services  as is evident from Heading itself  in Notification No.11/17-CT (R ) dated 28.6.17 as amended and in the absence of specific HSN Heading for non-manufacturing activities/services,  these would  be  automatically classifiable under residual HSN Heading 999799 “Other Services Nowhere else classified”  and NOT  anywhere under Heading 9988 which is specifically meant for manufacturing services.. This residual Heading attracts GST @ 18%.  So there is a need for specific HSN heading for non-manufacturing services/activities/processes instead of resorting to residual Heading later on. Line has been drawn between registered and unregistered persons and not between manufacturing and non-manufacturing services in Notification No.11/17-CT ( R ) as amended up to 18.11.21 read with Board’s Circular No. 126/45/19-GST dated 22.11.2019.

2.   In the absence of specific HSN Heading for non-manufacturing services, it is expedient and necessary to know what are  non-manufacturing services. The term, ‘manufacturing services’ includes the element of manufacture as per the definition of ‘manufacture’ provided under Section 2(72) of CGST Act.

 3.The  definition of ‘manufacture’ in CGST Act is, by and large,  same as it existed in Central Excise Act. Based on   case laws (Supreme Court/High Court/CESTAT/CEGAT pertaining to pre-GST era, the following processes/activities/services have been held as non-manufacturing process/activity inasmuch as these do not change the character of the goods after job-work and no new product is emerged as a result of job-work :-

1. Powder coating does not amount to manufacture.
2. Fitting accessories on  bicycles/motor cycles/motor cars does not amount to manufacture.
3.  Chilling of milk for long distance transportation does not amount to manufacture.
4.   Refilling of Light Liquid Paraffin  and Heavy Liquid Paraffin from bulk tanker into smaller barrels/drums bearing assessee’s name and logo does not amount to manufacture.
5.  Process of de-husking, cleaning, boiling and drying undertaken on raw betel nuts ‘whole’ does not amount to manufacture.
6.   Mounting of electrical components and accessories on wooden or polycarbonate boards does not amount to manufacture.

Process of roasting and cutting of supari not amounts to manufacture.

7. Cutting/slitting of aluminium foils from jumbo rolls does not amount to manufacture.
8. Cropping does not cause permanent change in grey fabrics and hence does not amount to manufacture.
9. The activity of silver coating of copper tamping powder does not amount to manufacture.
10. The  process of coating of steel bars/rebars with epoxy powder does not amount to manufacture.
11. Powder coating of furniture, electric panel boards and stabilizers does not amount to manufacture.
12. Changing the size of paper to suit the market needs does not amount to manufacture.
13. Ion/gold plating of watch cases does not amount to manufacture
14. Straightening and  cutting of running length of fibre does not   amount to manufacture.
15. The process of filtration of castor oil which includes bleaching, centrifuging and deodorization  cannot be termed as manufacturing.
16. Process of conversion of old and used diesel operated buses into CNG run buses does not amount to manufacturing activity as engine (internal combustion engine) remains the same only mode of fuel is changed.
17. Providing anti-corrosive surface to steel rod is not manufacture.
18. Conversion of Spirulina powder into tablet form not amounts to manufacture-SC in the case of COMMISSIONER VERSUS TWENTY FIRST CENTURY PHARMACEUTICAL PVT. LTD. [2003 (9) TMI 818 - SC ORDER]
19. Cylinder filling does not amount to manufacture.
20. Retreading of old tyres does not amount to manufacture
21. Upgradation of old computers  does not amount to manufacture.
22. Cutting of  marble blocks into slabs does not amount to manufacture.
23. Purification of synthetic diamond powder is not manufacture.
24. Conversion of uncoated paper into coated paper

There are so many other  processes/activities which have been held as not amounts to manufacture by various courts.

4. In the absence of specific HSN Heading for non-manufacturing services in GST laws and keeping in view very wide  scope in definition of ‘services’ under Section 2 (102) of CGST Act, such services  are  classifiable under the category of ‘Other  Services-Not Elsewhere Classified under HSN Heading 999799 attracting rate of tax @18% and if non-manufacturing services  are classified under HSN Heading 9988 under residual entry against serial no.26  (id)  attracting  concessional rate of 12 %,   it may  be prone to litigation.

    5.   It is pertinent to go through the definition of  ‘manufacture’ as per Section 2(72) of CGST Act which is as follows :

           (72) “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;

       Definition of ‘manufacture’  as per Supreme Court Judgement

        “Manufacture means bringing into existence a new substance known to the market and not merely producing some change in a substance - Processing not equitable to manufacture - Section 2(f) of Central Excises and Salt Act, 1944. Reported as UNION OF INDIA VERSUS DELHI CLOTH AND GENERAL MILLS CO. LTD. [1962 (10) TMI 1 - SUPREME COURT]

                    Literal meaning of the term, ‘manufacturing services’

          In view of the definition of ‘manufacture’ the term, ‘manufacturing services’ includes only those services which contain the element of ‘manufacture’ .

          DESCRIPTION OF  MANUFACTURING SERVICE AS PER NOTIFICATION NO.11/17-CT (R)  (AS AMENDED)  AT SERIAL NO. 26 OF  THE NOTIFICATION.

           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.

            DEFINITION OF ‘SERVICE’ AS PER SECTION 2 (102) OF CGST ACT

 (102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

       RELEVANT EXTRACT OF BOARD’S CIRCULAR NO. 126/45/2019-GST DATED  22-11-2019.

“2. The matter has been examined. The entries at items (id) and (iv) under heading 9988 read as under :

(3)	(4)	(5)
(id) Services by way of job work other than (i), (ia), (ib) and (ic) above;	6	-
(iv) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above.	9	-

3. Job work has been defined in CGST Act as under.

“Job work means any treatment or processing undertaken by a person on goods belonging to another registered person and the expression ‘job worker’ shall be construed accordingly.”

4. 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 28-6-2017. 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..”

     A perusal of above circular reveals that there is a  demarcation between the entries  (iv) and (id).  The entry (iv) stands for manufacturing services only   and (id) stands for   job-work  services other than mentioned in entry (iv) . The phrase ‘any treatment or processing’ means it includes manufacturing processes and non-manufacturing processes both. Hence job-work services i.e. non-manufacturing services/activities/processes/ cannot be classified under HSN Heading 9988 which is specifically meant for manufacturing services. There is a need for separate HSN Heading for non-manufacturing services for the purpose of legalizing concessional rate of 12 %  provided   to the job-workers under entry no.(id) above by Govt.

6.  If the non-manufacturing services/processes/activities are not classified  under separate HSN Heading,    such services  will automatically be  classifiable under HSN Heading No.9997  attracting 18 % rate of tax in view of very very wide scope of services defined in CGST Act which will jeopardize the  interests of those job-workers who are engaged only  in non-manufacturing services/activities/processes.

 SUGGESTION  :   Timely action by Board will save precious time of Govt. as well as assessees’. 

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KASTURI SETHI