TMI Blog2024 (4) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... ibid ie services by way of treatment or processing undertaken by a person on goods belonging to another registered person. What this means is that the process may or may not result in manufacture. Further circular states that Sr. No. 26(iv) specifically excludes services covered under entry (id) therefore covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under CGST Act. The activity undertaken by the applicant of coating of M.S. pipes falls within SAC code 998873. Thus, even on this ground the averment that the activity would fall within the ambit of SAC code 9989 is ruled out. This was reiterated in the case of COMMISSIONER OF CENTRAL EXCISE, BOLPUR VERSUS M/S RATAN MELTING WIRE INDUSTRIES [ 2008 (10) TMI 5 - SUPREME COURT] wherein the Hon'ble SC held that circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes. Thus, dutifully, following the clarification issued by the circular dated 22.11.2019, issued by CBIC, we find that in respect of services by way of treatment or processing undertaken by the applicant on goods belonging to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.S. pipes has been submitted by the applicant along with the application. 4. The applicant has further stated as under:- that they receive bare M.S. pipes on job work basis under delivery challan and after carrying out the necessary process of adding PU Foam and PE film/HDPE jacket, they send back the pre-insulated M.S. pipes to customers in terms of section 143, ibid', that in terms of para 3 of Schedule-II of the CGST Act, 2017, any treatment or process which is applied to another person's good is a supply of service; that in terms of notification No. 11/2017-CT(Rate) dated 28.06.2017, the entry 9988 (manufacturing services supplied on physical inputs owned by others) is relevant; that services by way of job-work falling under clause (id) of Sr. No. 26 (heading 9988) of the notification, ibid, attracts GST @ 12% (6% CGST + 6% SGST); that to be covered under heading 9988. the following twin conditions need to be satisfied:- a. activity must be manufacturing; b. such services must be performed on physical inputs owned by others. that the activity carried out by the applicant amounts to manufacture: that though manufacturing services or manufacturing process is not defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question viz,- 1. Whether the activity of insulating of bare M.S. Pipes provided by the customers on job work basis by using PU Foam and PE Film/HDPE jackets owned by the applicant would be classifiable under clause (iv) of Sr. No. 26 or under Sr. No. 27 of notification No. 11/2017-CT (Rate) dated 28.6.2017. 6. Personal hearing in the matter was held on 9.11.2023 and 27. 2. 2024 wherein Shri Rahul Gajera, Advocate appeared on behalf of the applicant and reiterated the facts as stated in the application. 7. The applicant vide his additional submission dated 24.11.2023, submitted the flow chart diagram certified by the Chartered Engineer Shri Anwar Y Kukad. 8. Assistant Commissioner, CGST, Kutch vide his letter dated 9.1.2024 informed that that activity in respect of which advance ruling is sought is an ongoing activity; that the question raised is not pending or decided in any proceedings; that on examining the issue it appears that the activity of insulating of bare M.S. pipes provided by the customers on job work basis by using PU Foam and PE film/HDPE jackets owned by the applicant is classifiable under Sr. No. 26(iv) [heading 9988] and not under Sr. No. 27; that the activity am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading 9988 (Manufacturing services on physical inputs (goods) 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 Customs Tariff Act. 1975 (51 of 1975)] 94 (except services by way of dyeing or printing of the said textile and textile products 95 ; [(c) all products [other than diamonds.] 96 falling under Chapter 71 in the First Schedule lo the Customs Tariff Act. 1975(51 of 1975); 97 (d) Printing of books (including Braille books), journals and periodicals; [(da) printing of all goods falling under Chapter 48 or 49 which attract CGST @ 2.5 per cent, or Nil] 98 [***] 99 [***] 100 [(f) all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975): (g) all products falling under Chapter 23 in the First Schedule to the Customs Tariff Act. 1975 (51 of 1975). except dog and cat food put up for retail sale falling under tariff item 23091000 of the said Chapter; [***] 101 [(i) manufacture of handicraft goods. Explanation .- The expression handicraft goods shall have the same meaning as assigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 28-06-2017. 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. 12. Let us first examine the claim of the applicant that the process undertaken by them, satisfies the test laid down by the Hon'ble Supreme Court's judgement, supra thus amounts to manufacture to fall within the ambit of heading 9988. However, it is the applicant's case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alvanization does not amount to manufacture. Subsequently the below mentioned chapter note 5 was added to chapter 73 [Articles of Iron or Steel], of the Central Excise Tariff Act, 1985, wef 14.5.2023 5. In relation to the pipes tubes of headings 7304, 7305 and 7306, the process of coating with cement or polyethylene or other plastic materials shall amount to manufacture However, interestingly this chapter note does not find a mention in the Customs Tariff Act, 1975, which is adopted for classification under GST, in terms of explanation (iii) of notification No. 1/2017-CT (Rate) dated 28.6.2017. Hence, the claim that the activity performed, amounts to manufacture, is not tenable and is therefore, rejected. 15. The second claim is that it would fall within the ambit of Sr. No. 27 of the notification ibid, under the heading 9989. Ongoing through the explanatory notes to scheme of classification of service under GST for chapter heading 9989, it is seen that it comprises of the following [relevant extracts] 9989 Other manufacturing services; publishing and reproduction services; material recovery services 99891 Publishing, printing and reproduction services 998911 Publishing, on a fee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68), ibid ie services by way of treatment or processing undertaken by a person on goods belonging to another registered person . What this means is that the process may or may not result in manufacture. Further circular states that Sr. No. 26(iv) specifically excludes services covered under entry (id) therefore covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under CGST Act. 17. Additionally, the explanatory notes to scheme of classification of service under GST for chapter heading 9988, states as follows [relevant extracts} 9988 Manufacturing services on physical inputs owned by others Description beneath is mentioned as Note 1 99881 Food, beverage and tobacco manufacturing services 99882 Textile, wearing apparel leather manufacturing services 99883 Wood and paper manufacturing services 99884 Petroleum chemical and pharmaceutical product manufacturing services 99885 Rubber, plastic and other non-metallic mineral product manufacturing services 99886 Basic metal manufacturing services 99887 Imbricated metal product, machinery equipment manufacturing services 998873 Other fabricated metal product manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST on job work services on diamonds may be reduced from 5% to 1.5%. Analysis : The rate of 5% on job work on all products falling under Chapter 71 in the First Schedule to the Customs Tariff Act, 1975 [Natural or cultured pearls, precious or semiprecious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coin] was recommended by Fitment Committee, as the GST rate on supply of finished diamonds was 3%. At this rate, value addition in the industry would have led to ITC getting utilized and no ITC getting accumulated on account of differential GST rate applicable on finished diamonds (3%) and on job work (5%). However, subsequently, the GST rate on finished diamonds was reduced to 0.25% on grounds of cash flow problem, which has led to accumulation of ITC on account of 5% rate on Job Work services by way of processing of diamonds. Therefore, there is a case for reduction of GST on job work on diamonds from 5% to 1.5%. However, reduction of GST rates on job work services may result in inversion of duty structure for the job worker on account of GST payable at 18% on inputs (for e.g. grinding wheel, tools etc.) and input services (for e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable on Bus Body Building shall remain at 18% as inputs used for bus body building are at higher rate of 28%/18% Revenue Implication of the proposal is Rs. 1100 Crores approximately. This amount shall shift as liability from job-worker to the principal and is therefore not a loss of revenue Minutes of the 37th GST Council Meeting [relevant extracts] 34.34. He further explained that the item no. 2 of Annexure IV was regarding engineering job work where the GST rate was recommended to be reduced from 18% to 12%. He stated that analysis of data showed that GST tax rate of 18% was high, leading to cash flow problems for the sector. Hence, the Fitment Committee had suggested GST tax rate of 12% and there would not be any cash flow problem, as the cash revenue would shift to the principal from job worker. He also explained that this entry did not cover the body building activity of job work on the chassis supplied by the Motor Vehicle manufacturers. There was sufficient credit available to them on inputs, which were mostly at 18% while output was taxed at 28% (if the vehicle was sold) or at 18% (if the service activity of body building was done). The Council agreed and approved th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 20. In view of the foregoing, we rule as under: RULING The activity of insulating of bare M.S. Pipes provided by the registered customers on job work basis by using PU Foam and PE Film/HDPE jackets owned by the applicant would be classifiable under clause (id) of Sr. No. 26 of notification No. 11/2017-CT (Rate) dated 28.6.2017. Further, it would be classifiable under clause (iv) of Sr. No. 26 of notification No. 11/2017-CT (Rate) dated 28.6.2017 in respect of similar service provided on goods belonging to unregistered persons. ---------------------- Notes: 94. Substituted vide notification No. 20/2017-Central Tax (Rate) dt 22.08.2017. Prior to substitution it read Textile yarns (other than of man-made fibres) and textile fabrics. 95. Inserted vide notification No. 15/2021-Central Tax (Rate) dt 18.11.2021. 96. inserted vide notification No. 20/2019-Central Tax (Rate) dt 30 09.2019 97. Substituted vide notification No. 31/2017-Central Tax (Rate) dt 13.10.2017. Prior to substitution it read Cut and polished diamonds; precious and semi-precious stones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 in the First Schedule to Ihe Customs Tarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstitution it read in column (3) Manufacturing services on physical inputs (goods) owned by others, other than (i) above 111. Inserted vide notification No 31/2017 - Central Tax (Rate) dt 13 10.2017 112. Substituted vide notification No. 1/2018 - Central Tax (Rate) dt 25.01.2018. Prior to substitution it read: (iii) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ii) and (iia))A above 9 - A inserted vide notification No. 31/2017-Central Tax (Rate) dt 13.10 2017 Prior to substitution it read and (ii) 113. Inserted vide notification No. 20/2017-Central Tax (Rate) dt 22 08 2017 114. Inserted vide notification No. 06/2021-Central Tax (Rate) dt 30.09.2021. Prior to substitution it read as : (i), (ia), (ib), (ic), |id), (ii), (iia) and (iii) 115. Inserted vide notification No. 1/2018-Central Tax (Rate) dt 25.01 2018 116. Omitted vide notification No 06/2021-Central Tax (Rate) dt 30.09.2021 Prior to omission it read as: (i) Services by way of priming of all goods falling under Chapter 48 or 49 including newspapers, books including Braille books), journals and periodicals], which attract CGST @ 6 per cent or 2 5 per cent or Nil. where only content ..... X X X X Extracts X X X X X X X X Extracts X X X X
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