In re Zuha Leather Private Limited (GST AAR Tamilnadu)
Whether the activity of tanning, with chemical consumption, carried out by the applicant is coming within the purview of job work chargeable to tax under the item i(e) of the Heading 9988 Manufacturing Services on Physical Inputs (Goods) owned by others and if not what would be the applicable tax rate?
The activity of the Applicant is a service by way of treatment or processing undertaken on hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) belonging to another person. The applicable GST rates are as under:-
(i) If the treatment or processing undertaken by the Applicant is on goods belonging to another registered person, then the applicable GST rate is 5% (CGST 2.5% and SGST 2.5%).
(ii) If the treatment or processing undertaken by the Applicant is on goods belonging to person other than those registered under CGST Act, then the applicable GST rate is 18% (CGST 9% and SGST 9%)
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
1. M/s. Zuha Leather Private Limited, No. 22, V.V. Koil Street, Periamet, Chennai 600 003. (hereinafter called as the ‘Applicant’) is registered under GST Acts with GSTIN 33AAACZ2099M1ZW. The Applicant has filed an application in Form GST ARA – 01 under section 97 of the Central Goods and services Tax and the Tamilnadu Goods and Services Tax Act, 2017, seeking advance ruling on the following question;-
Whether the activity of tanning, with chemical consumption, carried out by the applicant is coming within the purview of job work chargeable to tax under the item i(e) of the Heading 9988 ie., or Manufacturing Services On Physical Inputs (Goods) owned by Others and if not what would be the applicable tax rate?
2.0. The Applicant is registered under the provisions of GST law in the State of Tamil Nadu with GSTIN: 33AAACZ2099M1ZW. Their principal place of business is located at Chennai with the production facility (tannery for processing hides and skins) at Vaniyambadi.
2.1. The Applicant is basically a tanner carrying out the activity of tanning process on hides and skins (Chapter 41) and selling the finished product viz., finished leather both in local and as well as overseas markets by way of exports. Apart from their own manufacturing activity, the Applicant is carrying out job tanning (work) i.e., carrying out the activity of tanning process on the hides and skins owned by others. In the process of tanning, the applicant procures and transfers tanning chemicals [HSN Code Chapter 32, 38 & 39] which are chargeable to tax @ 18%.
2.2. The contract of tanning, essentially involves either –
a. Conversion of raw hides and skins (Chapter 41) into finished leather (Chapter 41) or
b. Conversion of raw hides and skins into wet blue or crust leather or
c. Conversion of wet blue or crust leather to finished leather or
d. Any other intermediary process/es.
2.3. In all cases, the intent of the contract is to process or tan the required type or finish on the input leather supplied by the Principal and price for such work (i.e. job tanning charges) that has been agreed mutually by the Principal and the Job worker. The activity of tanning could not be carried out without transferring tanning chemicals and it is the job worker who has to decide the kind and quantity of tanning chemicals required for the process in order to arrive at the agreed ‘finish’ on the input leather.
3 .0 The Applicant submitted, inter alia, that as per Section 2(68) of GST Acts wherein the term ‘Job work’ means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “Job worker” shall be construed accordingly”. Further, in respect of services by way of job work, Applicant has also submitted Circular No. 126/45/2019-GST [F. NO. 354/150/2019-TRll], dated 22-11-2019 which clarified and distinguished job work service pertaining to goods of registered and unregistered persons.
3.1 Therefore, though the Applicant is clear that the activity falls under job work service, ambiguity arises due to transfer chemicals in the contract of tanning, which has significant value (being 60% to 70%) in the contract price and further with higher rate of tariff under GST. Hence, Applicant requires clarification whether the activity of the Applicant falls within the definition of Job work under section 2(68) of CGST Act.
3.2 The Applicant had furnished the following rulings in their support:-
> In the case of M/s. CCE, MUMBAI-V v. SHAKTI INSULATED WIRES LTD. [2010] 1 taxmann.com 883 (Mumbai – CESTAT) it was held that it was job work even if job worker puts own inputs and later recovered the cost of inputs from principal manufacturer.
> In the case of M/s Madura Coats Ltd. v. Collector of Central Excise (1980 E.L.T.582) [Cal HC], it was held that “a work does not cease to be a job work simply because the job worker supplies some additional articles which do not constitute a substantial part of the manufacturing process”;
> In the case of Prestige Engineering Vs CCE [1994(73) ELT 497 (SC)] it had been held that addition of minor items by job worker would not detract it being a job work
> In the case of Automobile Corporation of Goa Limited, Goa Authority for Advance Ruling vide order no GOA/GAAR/10f 2017-18/2018-19/1929 dated 21.08.2018, it was held that it is supply of service under SAC 9988 and will attract 18% GST
> In the case of M/s Kondody Autocraft (India) Pvt. Ltd. AAR, vide Order No. KER/39/2019 dated 02.03.2019 it was held that fabrication of body on the chassis supplied by the customer is a service covered under SAC Code 9988-Manufacturing services on physical inputs (goods) owned by others and thereby attract 18% GST
4 .0 Personal hearing was held in digital platform on 17.05.2022. The Authorized Representative (AR) of the Applicant, Thiru. G.Pari, appeared for the hearing virtually. The AR reiterated the submissions made in their application. AR referred to the decision of TNAAR in the case of Tube Investments of India Ltd., wherein even when the goods are transferred on body building as job work, the activity is considered as Service under SAC 9988. The Applicant was asked to furnish the following documents.-
1. Copy of contract for job work
2. Write up on process undertaken as job work
3. write up on process undertaken as manufactures (own account)
4. Invoice raised for job work
5. Costing adopted to arrive at the Job work value
4.1 Subsequently, the Applicant submitted the following documents which were received on 15.06.2022.-
i. Copy of Job tanning order-sl.no. 1005227459 of M/s Century Overseas
ii. Flow chart for the process of job tanning
iii. Copies of invoice Nos. ZLJW013/20-21 dt 9.7.2020, ZLJW014/20-21 dt 10.7.2020, ZLJW016/20-21 dt 13.7.2020, ZUW017/20-21 dt 14.7.2020, ZUW022/20-21 dt 28.7.2020, ZLJW023/20-21 dt 29.7.2020 raised for job tanning (work).
iv. Copy of Customer Job card wise dyeing cost/customer job card wise finishing cost/customer job card wise machinery cost worksheet (sample)
v. Extracts of relevant paras from the ruling of Tube Investments of India.
4.2 Another Personal Hearing was held on 18.11.2022, as there was a change in the constitution of Members. In this Personal Hearing which was conducted virtually, the AR reiterated the submissions already made and explained the process briefly. On being queried whether any SCN has been issued and the documents accompanying the leathers transferred by the Principal to the Applicant, the Applicant submitted copies of e-way bill (e-way bill no. 761146585647, 771146583082, 571188324748) showing the transfer of leather from Principal to the Applicant and e-way bill (e-way bill no. 511188533010, 591188947004, 551189201808, 531192199198) showing the clearance of finished leather back to the Principal.
4.3. Flow chart for Processing submitted by the Applicant is shown hereunder:
