TMI Blog2021 (12) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... y of services will be covered by the residuary entry at item (id) of the said notification, namely, Services by way of job work other than (i), (ia), (ib) and (ic) above. Hon ble Supreme court in the case of M/S. MARUTI SUZUKI INDIA LTD. VERSUS COMMNR. OF CENTRAL EXCISE [ 2015 (3) TMI 784 - SUPREME COURT] has also held that there is a distinction between processing and manufacture and that Electro Deposition (ED) Coating of anti-rust treatment to increase shell life of various component is merely a processing activity and not a complete manufacturing activity. The impugned services supplied by the applicant are in the nature of job work services, classifiable under Entry at item (id) under heading 9988 of Notification No.11/2017-Central Tax Rate dated 28.06.2017 as amended. Coating services on old, worn out or used goods received from end users - HELD THAT:- Applicant receives old and worn out goods from its customers who have actually used the said goods and such use has resulted in wear and tear. The applicant has restored the old or damaged goods into good condition and also improved the functionality of the said goods, by the impugned activities. As per section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m reusable for such Customers. Thus it appears that such goods are sent by the end users. The applicant has not submitted details of new goods received from end users, if any, for coating services to be carried out - the semi finished/new/original goods are received only from tool manufacturers and not from end users and therefore we do not take up the issue of coating services on new tools received from end users for further discussion. - GST-ARA-102/2019-20/B-107 - - - Dated:- 9-12-2021 - SHRI. RAJIV MAGOO, AND SHRI. T. R. RAMNANI, MEMBER No.GST-ARA-102/2019-20/B-107 Mumbai dt. 09-12-2021 PROCEEDINGS (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act and MGST Act respectively] by M/s. Oerlikon Balzers India Pvt. Ltd., the applicant, seeking an advance ruling in respect of the following questions. 1. Whether activity of surface coating undertaken by the Applicant in the State of Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process of manufacturing but instead to restore the functionality of the said tools and make them reusable for such Customers. One additional process required for such old and worn out tool is re-sharpening which is done by the applicant themselves or is outsourced to third parties. 2.4 Activities undertaken by the Applicant are in the nature of job work as defined under Section 2 (68) of the Central Goods and Services Tax Act, 2017 (the CGST Act). 2.5 Further, both, the service accounting codes (SAC) and the explanatory notes for supply of services do not specifically mention job work as description of service in respect of any of the tariff items. Headings 9987 and 9988 of the explanatory notes is relevant to determine the classification of services supplied by the Applicant. Heading 9987 covers Maintenance, repair and installation (except construction) services and Heading 9988 covers Manufacturing services on physical inputs owned by others. However, the explanatory notes as well as the SAC do not exactly cover the set of services supplied by the Applicant at six-digit level under heading 9987. Whereas, the six digit level description of services at 998873 falling under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in to description provided under SAC 9987 namely, Maintenance, repair and installation (except construction) services However impugned activity is also not clearly defined under the said SAC and the explanatory notes to Chapter 99. 2.10 The gist of the coating process undertaken is as under:- a. Applicant carries out surface coating by the process of Physical Vapor Deposition (PVD). Such coating improves the productivity, wear resistance, strength and efficiency of such goods and in effect brings down the production cost for the user. Tools received from customers are of various types like New/Used tools from OEMs (Original Equipment Manufacturers); New/Used tools from End Users; Automotive/Precision/Decorative Components from OEMs. b. The goods received are pre-cleaned depending upon whether such goods are used goods and cannot be visually inspected. If the tools are in good condition and can be coated, accordingly, depending upon the type of tools the various processes like, De-coating, Re-sharpening (Regrinding), Nitriding, USI Cleaning, Degassing, Polishing, Fixturing, Coating, Post treatment, and Quality Inspection, etc. is carried out. 2.11 The process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. 26(id) and 26(iv), appropriate rate applicable to the activity of coating services undertaken on such semi-finished/original goods will depend upon whether such coating activity is in the nature of Job work as appearing under entry 26(id) or manufacturing services on physical inputs (goods) owned by others as appearing under residual entry no. 26(iv). 2.18 The Applicant submits that from a reading of Heading 9988 (Manufacturing services on physical inputs (goods) owned by others) as the broad level heading pertaining to all items under Sr.No. 26. it may appear that the said entry avers only the services which are in the nature of manufacturing, however, taking into consideration the description of various services covered in column (3) of the said entry and the fact that the activity of job work is not specified elsewhere in the said Notification the Applicant believes that the activity of Job work is covered under the category of the broad level entry of Manufacturing services on physical inputs (goods) owned by others . Accordingly, Job work activity undertaken by them is covered under Sr. No. 26(id) of the Notification 11/2017. 2.19 The impugned activity doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry 26(id) of Notification 11/2017 as amended and not at 18% under entry no. 25(ii) of the said is coating Notification. APPLICANT SUBMISSION DATED 05.10.2021:- 2.24 The Applicant till 30.9,2019 was paying tax at 18% on all kind of Coating services undertaken by them. The Central Government amended Sr. No. 26 of the Notification 11/2017 vide Notification 20/2019 C. T. (R) did 30.9.2019 (effective from 1.10.2019) ( the Not 20) so as to reduce the applicable rate of tax on the activity of Job work (except job work pertaining to certain specified goods) from 18% to 12%. The applicable rate of GST on the activity of Maintenance and Repair services, however, continues to remain at 18% in terms of Sr. no. 25 (ii) of Notification No. 11/2017. 2.25 The Department has opined that for coating services to be covered under the scope of the term job-work it needs to be understood from the perspective of how the service is provided and not from the perspective of what kind of service it is. The Department is of the view that:- 1. Coating services on New/original Goods received from OEMs are covered under SAC 998873 chargeable to Tax at 12% under entry 26(id) of Notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.6.2018 to infer that job worker is expected to work on goods sent by the principal i.e manufacturer and not the end user. Applicant submits that CBIC Circular No. 126/45/2019 has also clarified that Sr. No. (id) of Entry 26 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. Further, for the purpose of job work the term principal as per Section 19 Section 143 of the CGST Act means the registered person who sends the goods for Job work. Hence, inference drawn by the Department that any treatment or process can be held as amounting to job work only if the goods are sent by the manufacturer and not the end user is also not proper and correct and goes against the definition of job work under Section 2(68) itself 2.29 The department has submitted that, new goods supplied by the end users are subjected to the process of alteration intended for enhancing their life, efficiency, strength and performance but, not as a part of manufacture. Applicant submits that such inference is not proper and correct. Applicant s services are in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. B. Job Work is not a variety of service but rather a way of providing service; it not the subject of WHAT kind of service but how the service is provided. This point of view can be corroborated by the kinds or varieties of services enumerated under the SAC Headings, viz. 9954 provides for Construction Services; 0962 provides for Services in Retail Trade, 9965 provides for Goods Transport Services, 9972 provides for Real Estate Services, 9988 provides for Manufacturing Services on physical inputs (goods) owned by others, etc. In the case of semi-finished original tools, this process of coating is outsourced to the applicant. As per the explanatory Note on the SAC Heading 9988 it can readily be inferred that every Job Work is essentially a Manufacturing Service which finds its place in the SACs and the explanatory notes under heading 9988. Further, Notification No. 11/2017-C.T-(Rate), under entry no. 26, does entail that the goods (on which manufacturing services are provided) are the physical inputs owned by others. C. The original/new goods (physical inputs) are supplied by the OEM to the applicant in order to perform a part of the entire process of manufacture, i.e. to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs of machine tools. Hence, the rate of tax chargeable appears to be @ 18% in terms of entry no. 25(ii) of Notification No. 11/2017-CT (Rate), as amended. D. As regards whether the activity of surface coating on original I new goods received from customer is classifiable under SAC. 998898 [Other manufacturing services 11.e.e.), it is submitted that since the referred activities performed by the applicants are capable of being differentially treated on the basis on their descriptions as discussed in above paragraphs, there is no need to classes the same under the general category of other manufacturing services. E. As regards, whether the activity of surface coating on original / new goods received from customer is chargeable to tax @ 18% in terms of entry no, 26(iv) of Notification No, 11/2017-C.T (Rate), as amended, it is relevant to refer to the excerpt from Circular No. 126/45/2019-GST, dated 22/11/2019 which reads as under: 3. job work is 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of their repair services under SAC: 9987, more specifically under 998729, chargeable to lax @ 18% in terms of entry 25(ii) of Notification No. 11/2017-C.T (Rate), it is submitted that the Explanatory Note describes SAC Heading 998729 as Maintenance and repair services of other goods n.e.c: This service code includes repair services for household articles and equipment, no elsewhere classified, e.g., articles for igniting and other Personal and household goods, repair services for articles for sport and camping, While-you-wit services such as cutting of keys, fitting of heels, plastic coting of identity cards etc. Whereas, the repair services provided by the applicant seem rightly classifiable under SAC: 9987 [Maintenance, repair and installation (except construction) services], more specifically under Heading 998717 (Maintenance and repair services of commercial and industrial machinery) which specifically provides for repairs of machine tools. Hence, the rate of lax chargeable appears to be @ 18% in terms of entry no. 25 (ii} of Notification No. 11/2017-C. T (Rate), as amended. C. As regards the applicants contention that the classification of service is not determined on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifinished, original/new goods received from Customer is classifiable under SAC 9988 as job work activity chargeable to tax at 12% in terms of entry no. 26(id) of Notification 11/2017-CTR as amended or at 18% in terms of entry no. 26(iv) of Notification no. 11/2017-CTR. And (2) Whether the impugned activity on old, worn out or foods received from Customers is classifiable under SAC 9988 as job work activity chargeable to tax at 12% in terms of entry no. 26(id) of Notification 11/2017-CTR as amended or under SAC 9987 as repairs chargeable to tax at 18% in terms of entry no. 25(ii) of Notification No. 11/2017-CTR. 5.4 We now take up the questions pertaining to each of the transactions as under: 5.5 COATING SERVICES ON NEW/ORIGINAL GOODS AND AUTOMOTIVE COMPONENTS RECEIVED FROM OEMs 5.5.1 The issue is whether the impugned activity/process carried out by the applicant on new/original goods and automotive components received from its clients, OEMs in this case, amounts to job-work and if yes, whether the provisions of Notification 11/2017 C.T. (Rate) are applicable in its case. 5.5.2 The applicant s activity is rendering of coating services (which is outsourced to them by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a manufacturer of the impugned products. 5.5.9 Section 143 (I) (a) of the CGST Act, 2017 specifies that the material sent out for Job Work should be brought back by the principal, after completion of job work or otherwise, within one year of the goods being sent out. The applicant during online hearing has stated that this condition is also satisfied by them. 5.5.10 From the submissions made by the applicant we find that :- I. The process of coating is undertaken by a person i.e., the applicant; II. The process is undertaken on goods belonging to another person who is registered under the GST Act; III. Only job charges in the form of processing charges, are received by the applicant. IV. The goods after processing are returned back within one year. V. No new product emerges after the process is carried out by the applicant on the goods belonging to principal. VI. The applicant receives only job charges from GPL, for the services rendered. 5.5.11 Since no new product comes into existence after the process conducted by the applicant on the goods supplied by its principals, therefore the process undertaken will come under the purview of job ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/2017-CTR dated 28.06.2017 was inserted with effect from 01.10.2019, by per Notification No. 20/2019- CTR dt. 30.09.2019 and subsequent to the same the relevant entry at Sr. No. with all amendments made till 01.10.2019, is as under :- SI.No. Chapter, Section or Heading Description of Service Rate (per cent.) Condition 26 Heading 9988 (Manufacturing services on physical inputs owned by others) (i) Services by way of job work in relation to- (a) Printing of newspapers; (b) Textiles and textile products falling under Chapter 50 to 63 in the First Schedule to the (goods) Customs Tariff Act, 1975 (51of 1975); ; (c) all products other than diamonds, falling under Chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975); ; (d) Printing of books (including Braille books), journals and periodicals; (da) printing of all goods falling under Chapter 48 or 49, which attract CGST @ 2.5per cent. or Nil; (e) Processing of hides, skins and leather falling under Chapter 41 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to another person, in relation to printing of all goods falling under Chapter 48 or 49, which attract CGST @ 6per cent. 6 (iii) Tailoring services 2.5 (iv) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above. 9 5.5.14 From the discussions above, we find that, the impugned services supplied by the applicant are in the nature of job work. We further find that the said services do not fall under entries at items (i), (ia), (ib) and (ic) above. Therefore we find that the subject supply of services will be covered by the residuary entry at item (id) of the said notification, namely, Services by way ofjob work other than (i), (ia), (ib) and (ic) above. 5.5.15 Further, Hon ble Supreme court in the case of Maruti Suzuki Limited Vs. CCE, New Delhi, 2015 (318) E.LT 353 (S.C) has also held that there is a distinction between processing and manufacture and that Electro Deposition (ED) Coating of anti-rust treatment to increase shell li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Job work under the present law. Further in terms of the Apex Court s ruling also, activity of coating is only a process undertaken on goods. 5.5.17 In view of the above, we hold that the impugned services supplied by the applicant are in the nature of job work services, classifiable under Entry at item (id) under heading 9988 of Notification No.11/2017-Central Tax Rate dated 28.06.2017 as amended. 5.6 COATING SERVICES ON OLD, WORN OUT OR USED GOODS RECEIVED FROM End Users 5.6.1 The applicant has submitted that they also receive old/worn out or used goods from end users for coating work. The Applicant believes that process of coating undertaken on old, used or worn out goods can be categorized as job work as well as repairs under GST. The applicant has also submitted that, in connection with coating services undertaken on old/worn out or used goods, the term repair means to restore something damaged, faulty, or worn to a good condition and therefore repair or maintenance service restores or improves the functionality already created and possessed by the article or thing and further, such activity restores the old or damaged goods into good condition and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the said process may be either treated as job work or repair. The applicant themselves submitted that, with respect to old, used or worn out goods, the process of coating done by the applicant remains the same, however the said goods are not sent by the Customers for carrying out any part of the process of manufacturing but to restore the functionality of the old and worn out tools and make them reusable for such Customers. In fact one additional process required for such old and worn out tool is re-sharpening which is done by the applicant themselves or is outsourced to third parties. 5.6.6 We find that some extensive processes are performed on the old and used goods i.e. cutting tools and components which may undergo some change but the change does not result in any new product. Further, we find that, in the subject case, old, worn out cutting tools and components/goods are converted into reusable cutting tools and components /goods. The old worn out cutting tools and components/goods are not a distinct commodity from serviceable cutting tools components/goods, only that they were rendered unusable only because of wear and tear over a period of prolonged use. When the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case as referred to, in a Job work process. The above example of a Television set being made workable after some process carried out by a Television mechanic holds goods in the subject case. The conversion of used and worn out goods into reusable ones cannot be treated as a manufacturing or job work activity. 5.6.11 SAC 9987 covers under its ambit Maintenance, repair and installation (except construction) service . The process undertaken by the applicant to convert used, worn out cutting toots and components is aptly covered under SAC 9987 as repair services, in view of the discussions made above, we hold that the subject activity undertaken by the applicant is repair activity. In the case of Saraswati Industrial. Syndicate Ltd. V/s. UOI, 1985 (20) ELT-251, the Hon ble Punjab and Haryana High Court observed as under:- 7 The old and worn out Sugar Mill Rollers are received by the petitioner. The outer case shell is broken. The resultant cast iron is melted A requisite quantity of the metal is added thereto and the same is cast into a shell which is mounted on the shaft. This roller is then machined and grooved No doubt, the old roller passes through, a number of proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 5.6.13 The Applicant has also contended that the classification of the coating activity undertaken on old/used/worn out goods could also fall under service accounting code 998873 as metal treatment and coating services. 5.6.14 SAC 9988 covers manufacturing services on physical inputs owned by others. The services are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. We have already held above that the coating services on the old and worn out goods like cutting tools and components is an activity of repair and squarely falls under SAC 9987. The coating services on old and worn out goods supplied by end users are not an activity as outsourced portions of a manufacturing process or a complete outsourced manufacturing process and therefore we are of the firm view that the impugned activity does not fall under SAC 998873. 5.7 COATING SERVICES ON NEW TOOLS RECEIVED FROM End Users 5.7.1 The applicant, in their submissions, has generally stated that New Tools are also received From end users for coating works. 5.7.2 However they have also submitted that In the case of semi-finished/original tools, the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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