NOVEMBER 27, 2019

By K Srinivasan

ENTRY at item (id) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 was inserted with effect from 01-10-2019 to implement the recommendation of the GST Council to reduce rate of GST on all job work services, which earlier attracted 18 % rate, to 12%.

The entry at item (iv)was notably under the same heading 9988 of the same Notification above,but to cover manufacturing services on physical inputs owned by others with GST rate of 18%.

The entries at items (id) and (iv) both under heading 9988 are reproduced here under:

(id) Services by way of job work other than (i), (ia), (ib) and (ic) above;

(iv) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above.

The point of concern here is whether both the entries 26(id) and 26(iv), canco-exist with one another?

Especially when since inception, Notification No. 11/2017-Central Tax Rate had separate demarcations for Services by way of Job Work and Manufacturing Services on physical inputs (goods) owned by others.

This shows clear intention on the part of the Legislature to draw a line between services by way of job work and Manufacturing services on physical inputs (goods), owned by others.

Otherwise they could have used similar language in both the entries.

Since the entry relating to 26(i) Group containing the term Job Work, directly connected with Section 2(68) of the CGST Act, 2017, obviously restricts it to cases where any treatment or process is undertaken by a person, on the goods belonging to another registered person.

Therefore the residuary entry of above namely 26(iv) denoting the Manufacturing services on physical (inputs) owned by other unregistered persons must not contain any reference to the 26(i) Group, since both groups are mutually exclusive.

When the Board was queried on this confusion it replied by Circular 126/45/2019-GST dated 22nd November 2019 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), among other entries (i),(ia),(ib), (ic) (ii), (iia) and (iii) and, therefore, only covers treatment services which are carried out on physical inputs (goods) which are owned by persons other than those registered with GST at 18%.

But what remains at the end of this discussion as a question mark, is what about Treatment on goods exclusively carried out on physical inputs (goods) not amounting to manufacturing, which are owned by unregistered persons?

Post 30th  September 2019, Entry 26(id) would act as the residual entry for any treatment or process on goods belonging to registered persons not falling under 26(i), 26(ia), 26(ib) and 26(ic). Entry 26(iv) would also work more or less as a residual entry for any treatment or process on goods belonging to unregistered persons not falling under 26(ii), 26(iia), 26(iii) with GST at 18%.

Could it be that heading of 9988 pertains to Manufacturing services on physical inputs (goods) owned by others and as well as job work (which covers both manufacturing activities and activities that do not amount to manufacturing) which made the Board adopt a common Clause (iv) as a residuary category that can be commonly applied to both categories Manufacturing/Job work services carried out on goods owned by Unregistered persons?

You can't overarch and pluck from the 26(i) group, ‘treatment on goods' alone with the help of residuary entry 26(iv), as others item not covered by 26(i), (ia), (ib) and (ic) by passing on the impact of GST at 18% implicitly, as applicable to Manufacturing services on goods owned by unregistered persons.

To the above effect, it would appear a separate residuary entry Under 26(ii)&(iii) group without reference to the 26(i) group, say entry (v) for an example suggestive of “Treatment (without amounting to manufacture) carried out on materials/goods owned by other unregistered persons” with GST at 18%, would be greatly welcome to set this issue at rest, is the humble opinion of the Author.

In the absence of the above change, it will have to be forcibly consigned to the residuary entry of service heading 9997, amidst wild speculations, which alone attracts 18% GST, as applicable to Services not elsewhere specified, which can never be a sub-specie of Job work/ Manufacturing services,when rightfully having its own heading 9988.

Will the Government come forward to set right the above anomaly faced by the Job work trade,is the sincere expectation of all concerned?

(The Author is a Former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer GST, and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)