2019 (7) TMI 45 - AAR - GST

Classification of supply - Job-work - supply of services or not - composite supply or not - building of body after utilizing and consuming owned materials and providing labour and further amounting the same on chassis of the principal - whether classified as supply of service under HSN. 9988? - Sec. 8(a) of the CGST Act. HELD THAT - The applicant intends to execute a contract of fabrication of body to be mounted on the chassis by a job worker. As per the term of the contract the chassis will be delivered by the applicant(Principal) for the purpose of carrying out the body building on the chassis on delivery challan to the job worker. The job worker shall procure various goods such as metal sheets plywood seats glasses aluminium sections etc. as inputs for fabricating the bus body besides fabrication services. Once the body is built and mounted on the chassis by the job worker the vehicle will be sent back to the Principal/the Applicant of the chassis after raising tax invoice towards body building charges on which GST will be charged separately. At no stage the ownership of the chassis will be transferred by the Principal to the job worker and body built thereon will be nature of job work - The job worker will claim the credit of GST paid on the material used as input against Output liability of GST on body building activity carried out by it. The consideration received by the job worker will be towards the manufacturing of the body on the chassis supplied by the Applicant (Principal). Whether the nature of the work falls under the purview of Job work or not? - HELD THAT - Once the body is built and mounted on the chassis by the job worker the vehicle will be sent back to the Applicant/Principal after raising tax invoice towards body building charges on which GST will be charged separately. At no stage the ownership of the chasis will be transferred by the Applicant to the job worker. The job worker will claim the credit of GST paid on the material used as input against output liability of GST on body building activity carried out by it. The consideration received by the job worker will be towards the manufacturing of the bus body on the chassis supplied by the Principal. GST Law does not distinguish between raw material finished goods and semi-finished goods. It talks about input and Capital goods. Even Semi-finished goods or intermediate are goods and in turn Input by the Principal or by the worker - So the argument of the applicant that the nature of the work stated in the application should be falls under job work is tenable under the provision of the Law. Whether mounting of Bus/ Truck Ambulance Body by the job worker on the chassis supplied by the principle for which the job worker charged fabrication charges including cost of certain material that was consumed during the process of job work. would amount composite supply in which supply of service being principal supply therefore on the basis of provision of Sec. 8(a) of the CGST Act the same would be classified as supply of service under HSN 9988? - HELD THAT - The activity and question raised before us has been suitably clarified and dealt with Circular no. 52/26/2018-GST issued by Government of India Ministry of Finance Department of Revenue dated 9th August 2018 - It is clarified that the supply made is that of vehicle and accordingly supply would attract the GST applicable to the vehicle @28%. In the case as mentioned at Para 12.2(b) above fabrication of body on chassis provided by the principal (not on account of body builder) the supply would merit classification as service and 18% GST as applicable will be charged accordingly. Thus on mounting of Bus/ Truck /Ambulance body on the chassis to be supplied by the Principal on delivery challan or any other owner of the chassis on which Bus/ Truck /Ambulance body will be fabricated by collecting job work charges including inputs required for such fabrication work and in no case the ownership of the chassis will be transferred by Applicant to the job worker will be taxable under SAC 998881 - Motor vehicle and trailer manufacturing services and under entry no. 26(ii) as - Manufacturing services on physical inputs (goods) owned by other it is taxable @18%(9% under CGST and 9% under SGST Act).

Summary

Issues Involved:
1. Classification of the activity of mounting bus/truck/ambulance bodies on chassis supplied by the principal.
2. Determination of whether the activity constitutes a composite supply.
3. Applicable GST rate for the activity.

Issue-wise Detailed Analysis:

1. Classification of the Activity:
The applicant, engaged in trading motor vehicles, provides chassis to a job worker for body building. The job worker procures materials and fabricates the body on the chassis, returning the completed vehicle to the applicant. The ownership of the chassis remains with the applicant throughout the process. This activity was examined to determine whether it falls under the definition of "job work" as per Section 2(68) of the CGST Act. The relevant explanation under Section 143 of the GST Act and the precedent set by the Supreme Court in Prestige Engineering (India) Ltd. vs. CCE confirmed that the addition of materials by the job worker does not change the nature of the work, thus classifying it as job work.

2. Composite Supply Determination:
The applicant contended that the job work involving the use of materials constitutes a composite supply, with the principal supply being the service of body building. This argument is supported by Section 2(30) and Section 2(90) of the CGST Act, defining composite supply and principal supply respectively. The job worker's activity of fabricating and mounting the body on the chassis was considered a composite supply, where the predominant element is the service of body building. As per Section 8(a) of the CGST Act, the tax liability on composite supply is determined by the principal supply, which in this case is the service of body building.

3. Applicable GST Rate:
The concerned officer and the applicant referred to Circular No. 52/26/2018-GST, which clarifies that the fabrication of a body on a chassis provided by the principal is classified as a service and attracts 18% GST. This classification is under SAC 998881 - "Motor vehicle and trailer manufacturing services" and entry no. 26(ii) - "Manufacturing services on physical inputs (goods) owned by others." The ruling confirmed that the activity of mounting bus/truck/ambulance bodies on the chassis supplied by the principal is taxable at 18% GST (9% under CGST and 9% under SGST).

Ruling:
The authority ruled that the activity of mounting bus/truck/ambulance bodies on the chassis supplied by the principal, where the job worker charges for fabrication including the cost of materials used, is classified under SAC 998881 and is taxable at 18% GST. This ruling is valid subject to the provisions under section 103(2) and unless declared void under Section 104(1) of the GST Act.