2025 (6) TMI 916 - AAR - GST

Classification of services - job work service falling under SAC 9988 or not - shot blasting activity carried out by the Applicant on the castings of his customer M/s. GPI within the premises of M/s. GPI by using his own shot blasting machine/steel shots as well as labourers - taxable at 12% GST in terms of clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R) dt.28.06.2017 or not - HELD THAT - Steel shot blasting is a surface treatment process where small spherical steel particles are propelled at high speed onto a metal surface to clean or prepare it for further processing. This method is commonly used in various industries for tasks like rust and scale removal surface preparation for painting or coating and improving the fatigue life of metal parts through shot peening. Entry (id) of the notification covers job work services as defined in section 2(68) of CGST Act 2017 in respect of treatment or processing undertaken by a person on goods belonging to another registered person. Therefore Sr. No. 26(id) (residual entry) covers job work where inputs are sent by registered person while Sr. No. 26 (iv) covers manufacturing services (processing) wherein inputs (goods) are sent by an unregistered person. The applicant is carrying out the processing on the castings provided by M/s. GPI who is registered under GST Act and that during the course of job work ownership of the goods does not change and remains with its client. Conclusion - The short Blasting activity carried out by the applicant on the casting of his customer M/s. Ghatage Patil Industries within the premises of M/s. Ghatage Patil Industries by using his own shot blasting machine / steel shots as well as labourers is classifiable as job work service falling under SAC 9988. Also the service in question falls within the ambit of entry Sr. No. 26 (id) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended vide Notification No. 20/2017-CT (Rate) dated 30.09.2019 and is classifiable under SAC 9988 and will attract GST @ 12%.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

(a) Whether the shot blasting activity carried out by the applicant on the castings of his customer within the customer's premises, using the applicant's own shot blasting machine, steel shots, and labourers, is classifiable as a job work service under SAC 9988?

(b) Whether the said shot blasting activity attracts GST at the rate of 12% under clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R), dated 28.06.2017, as amended?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Shot Blasting Activity as Job Work Service under SAC 9988

Relevant Legal Framework and Precedents:

Section 2(68) of the CGST Act, 2017 defines "job work" as "any treatment or process undertaken by a person on goods belonging to another registered person." The term "job worker" is construed accordingly. SAC 9988 covers "Manufacturing services on physical inputs (goods) owned by others."

Several precedents under the erstwhile Service Tax regime, including decisions by the Hon'ble CESTAT, have held that intermediate processes carried out on goods supplied by the customer, even within the customer's premises and against lump-sum or per-piece charges, qualify as job work. Cases cited include Om Enterprises v. CCE, Bhagyashree Enterprises v. CCE, Dhanshree Enterprises v. CCE, and Manish Enterprises v. CCE.

Court's Interpretation and Reasoning:

The AAR noted that the applicant installed its own shot blasting machine at the customer's premises and used its own steel shots and labourers to perform the shot blasting process on castings supplied by the customer, who is a registered person under GST. The applicant charged per-piece fees and maintained appropriate records of goods received and returned.

Shot blasting is a surface treatment process that does not result in the emergence of a new product; the castings remain castings before and after processing. The AAR observed that the activity fits squarely within the definition of job work as per Section 2(68) CGST Act, since it is a treatment or process undertaken on goods belonging to another registered person, without transfer of ownership.

The AAR distinguished between "manufacturing services on physical inputs owned by others" (SAC 9988) and job work services, clarifying that job work services are a subset of such manufacturing services where the inputs belong to a registered person and the process is undertaken on their goods without change of ownership.

Key Evidence and Findings:

• The applicant's use of own machinery, materials (steel shots), and labour.
• The activity is carried out on goods supplied by a registered person (customer).
• Charges are on a per-piece basis.
• Proper records of goods received and returned are maintained.
• The process does not alter the fundamental nature of the goods.

Application of Law to Facts:

Given the facts and legal framework, the AAR concluded that the shot blasting activity is a job work service under SAC 9988, as it is a treatment undertaken on goods belonging to another registered person without transfer of ownership.

Treatment of Competing Arguments:

The jurisdictional officer concurred with the applicant's interpretation and submitted that the activity is job work under SAC 9988. The officer also distinguished the activity from manufacturing, emphasizing that no new product emerges from the process. The applicant's contention that the activity qualifies as job work was accepted without dispute.

Conclusion:

The shot blasting activity carried out by the applicant on the customer's castings within the customer's premises, using the applicant's own resources, is classifiable as job work service under SAC 9988.

Issue 2: Applicability of 12% GST Rate under Clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R)

Relevant Legal Framework and Precedents:

Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017, as amended by Notification No. 1/2018 and No. 20/2019, prescribes GST rates for various services under SAC 9988. Clause (id) of Sr. No. 26 specifically covers "Services by way of job work other than (i), (ia), (ib), (ic) and (ica) above," attracting GST at 12% (6% CGST + 6% SGST) w.e.f. 01.10.2019.

Circular No. 126/45/2019-GST dated 22.11.2019 clarified the scope of entries (id) and (iv) under SAC 9988, explaining that entry (id) covers job work services as defined in Section 2(68) CGST Act (services on goods belonging to a registered person), while entry (iv) covers manufacturing services on inputs owned by unregistered persons.

Court's Interpretation and Reasoning:

The AAR analyzed the notification and circular, noting that the applicant's activity falls within the ambit of clause (id) because:

• The goods belong to a registered person (the customer).
• The activity is a job work service as per the statutory definition.
• The activity is not covered by any other specific sub-clauses (i), (ia), (ib), (ic), or (ica).

The AAR emphasized the distinction between entries (id) and (iv), confirming that the applicant's activity is covered by (id) and thus attracts the reduced GST rate of 12%, replacing the earlier 18% rate.

Key Evidence and Findings:

• The applicant has been charging 18% GST post-GST regime introduction but seeks clarity on applicability of 12% rate.
• The customer is a registered person under GST.
• The activity is a job work service as per Section 2(68) CGST Act.
• Circular No. 126/45/2019-GST explicitly clarifies the rate applicability.

Application of Law to Facts:

The applicant's shot blasting service qualifies as job work under clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R), attracting GST at 12% effective from 01.10.2019.

Treatment of Competing Arguments:

No contrary arguments were raised by the jurisdictional officer or other parties. The officer supported the applicant's view and recommended acceptance of the application.

Conclusion:

The shot blasting job work service attracts GST at the rate of 12% under clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R), effective from 01.10.2019.

3. SIGNIFICANT HOLDINGS

The AAR held as follows:

"The shot blasting activity carried out by the applicant on the casting of his customer within the premises of the customer by using his own shot blasting machine, steel shots as well as labourers is classifiable as job work service falling under SAC 9988."

"The said service falls within the ambit of entry Sr. No. 26 (id) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 as amended, and is classifiable under SAC 9988 and will attract GST @ 12% (CGST 6% + SGST 6%) with effect from 01.10.2019."

The AAR established the core principle that job work services, defined under Section 2(68) CGST Act, performed on goods belonging to registered persons, fall under clause (id) of Sr. No. 26 of Notification No. 11/2017-CT(R) and attract GST at 12%, thereby distinguishing such services from manufacturing services on goods owned by unregistered persons, which attract a different rate.