Changes in Job Work GST rates – Differently Decoded

CA Shubham Khaitan

Effective from 1^st October 2019 vide Notification no.20/2019-Central Tax (rate) dated 30^th September 2019, a few entries have been inserted/amended with regard to job work rates in the primary rate Notification no. 11/2017-Central tax (rate) dated 28^th June 2017. After the amendment in the said Notification, Heading 9988 reads as follows:

Clauses	Description	Rates
(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 (51of 1975); (c) all products 107[, 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; …….	2.5
(ib)	Services by way of job work in relation to diamonds falling under chapter 71 in the First Schedule to the Customs Tariff Act 1975	0.75
(ic)	Services by way of job work in relation to bus body building	9
(id)	Services by way of job work other than (i), (ia), (ib) and (ic) above	6
(ii)	Services by way of any treatment or process on goods belonging to another person, in relation to- (a) printing of newspapers; (b) printing of books (including Braille books), journals and periodicals. (c) printing of all goods falling under Chapter 48 or 49, which attract CGST @ 2.5 per cent. or Nil	2.5
(iia)	Services by way of any treatment or process on goods belonging 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 owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above	9

After the amendment of the given entries, a number of confusions have arisen with regard to the rate for services performed by a person on the physical inputs owned by others. So, it is pertinent to analyze the relevant heading comprehensively.

Heading 9988

Heading 9988 specifically covers Manufacturing services on physical inputs owned by others. Within this heading, clauses (i), (ia), (ib), (ic) and (id) covers those services which are by way of job work. On the other hand, clauses (ii), (iia), (iii) and (iv) does not state specifically if any of the services should amount to job work. The only condition to fall within is heading is that the physical inputs should be owned by any person other than the person who is carrying out the treatment or process on the said goods.

Confusion between clause (id) and (iv) – what is job work?

There is no doubt that all the entries are mutually exclusive and any particular service cannot said to be falling within multiple entries. However, the biggest confusion has been that after the amendment there are two residuary entries – clause (id) and clause (iv). Clause (id) talks about job work in residuary cases which have not been specifically covered. On the other hand, clause (iv) talks about any manufacturing services on physical inputs owned by others in all residuary cases and specifically excludes clause (id) too.

In order to draw the line of difference between clause (id) and (iv), the definition of job work needs to seen carefully. Clause (id) covers services covered in job work and clause (iv) covers those services which do not amount to job work (as it excludes clause id). The definition of job work as per Section 2(68) of the CGST Act 2017:

“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”

As per Section 2(94) of the CGST Act 2017, registered person means a person who is registered under Section 25. Thereby only a person registered under the GST law is called as a registered person.

From the above, it can be inferred that the job work can only arise if the physical inputs belong to another registered person. If the principal owner of the goods is unregistered, then the treatment or process carried out by another person does not amount to job work within the terms of the GST law. So, any job worker carrying out any treatment or process belonging to another registered person, he should charge 12% GST in residuary cases as per clause (id). However, if the principal is unregistered, the person carrying out the process should charge 18% in terms of clause (iv). So, a job worker is recommended to charge the relevant GST rate based on whether or not the GSTIN is provided by the principal.

Another justification – logic of registered person

Linkage of clause (i) and (ii)

Clause (ii) of Heading 9988 states that the following services are taxable at the rate of 5%:

“Services by way of treatment or process on goods belonging to another person in relation to –

(a) printing of newspapers

(b) printing of books (including Braille books), journals and periodicals

(c) printing of all goods falling within Chapter 48 or 49 which attract CGST @ 2.5% percent or NIL”

As per the extract of clause (i) which taxes certain job work services at the rate of 5%, the following has been mentioned:

“Services by way of job work in relation to –

(a) Printing of newpapers

(d) printing of books (including Braille books), journals and periodicals

(da) printing of all goods falling within Chapter 48 or 49 which attract CGST @ 2.5% percent or NIL”

There is no point of mentioning the same entry twice in clause (i) and (ii) if they cannot be differentiated. The point of differentiation here is whether or not the said process amounts to job work. If it amounts to job work, it falls within clause (i) and if not, it gets covered within clause (ii). Only if the process is carried out for a registered person, it falls within clause (i). This is evident from the fact that clause (ii) talks about any process carried out on goods belonging to any other person (and not registered person). To ensure that there is a uniformity in rate of 5% whether or not the goods belong to a registered person, two separate clauses (i) and (ii) had been created for the same nature of goods given above.

Linkage of clause (i) and (iii)

Clause (iii) specifically states that the rate on tailoring services is 5%. On the other hand, clause (i)(b) states that services by way of job work in relation to textile and textile products falling in Chapter 50 to 63 of the First Schedule to the Customs Tariff Act 1962 is 5%.

Tailoring services are also in relation to textile and textile products under Chapter 50 to 63. What was the point of creation of a separate entry under clause (iii) if a person could easily have been covered in clause (i). The real reason for a separate clause was that clause (i) only covers treatment or process belonging to another registered person (i.e. job work). On the other hand, tailoring services can be provided to unregistered persons also. A consumer who buys any fabric may approach a tailor for stitching or an owner of a wearing apparel may approach the tailor for alteration of the garments. Thereby, the rate of job work on tailoring services has been stated as 5% specifically.

On all other processes of treatment or process carried out on behalf of another unregistered person in relation to textile products as per Chapter 50 to 63, the coverage within clause (i) is not possible. In such cases, the coverage will be under the residuary clause (iv) wherein the rate mentioned is 18%. Ofcourse, if the process is for a registered person amounting to job work under clause (i), the rate applicable is 5%.

Process amounts to manufacture – to be checked?

A view that has been circulating in the professional and business forum is that one needs to check if the job work performed results in a manufacture or not. This is because residuary clause (iv) discusses about manufacturing services not covered elsewhere and clause (id) talks about other job work services. Thereby clause (id) only covers those job work services which does not amount to manufacture. So, the view emanates from the fact that clause (iv) discusses about manufacturing services and to make clause (id) mutually exclusive only those job work services which does not amount to manufacture should be covered within it. In my opinion, this logic is incorrect due to the following reasons:

a) The term ‘manufacturing services’ has not been used in relation to the definition of ‘manufacture’ given in the GST law. This is because the broad Heading 9988 in itself states that the coverage of the said heading will be ‘Manufacturing services on physical inputs (goods) owned by others.’ If the logic that clause (id) covers job work services which do not amount to manufacture is applied, then the said service cannot fall within Heading 9988. This is because Heading 9988 would have said to occur only manufacture related activities and not other job work services. However, that is not the case. All treatment or processes on goods belonging to another person is covered within Heading 9988 even though the heading mentions ‘manufacturing services’. This shows that the nomenclature ‘manufacturing services’ has been used liberally without specific reference to the term ‘manufacture’ as per the GST law.

b) Had the intent of the Government been to cover only those activities which amount to ‘manufacture’ in terms of the GST law in clause (iv), the position before 1^st October 2019 becomes absurd. This is because clause (id) was not there before this date. All the residuary activities not specifically mentioned in the clauses (i), (ii) and (iii) were covered within (iv) above. Had (iv) only covered manufacturing activities, where would those job work services have been covered which did not amount to manufacture? If clause (iv) covered non-manufacturing activities also before 1^st October 2019, why should the position change suddenly?

c) It can be seen from the coverage of clause (id) and (iv) that clause (id) is more specific and clause (iv) is more of a residuary section. What is covered is clause (id) cannot be covered within clause (iv) and not the other way round. If any job work services are covered within clause (id), then it gets automatically excluded under clause (iv) because of the specific exception created under clause (iv). If manufacture related activities were not to be covered within clause (id), a specific exclusion of that should have been created under the said clause. An interpretation cannot be derived that since clause (iv) covers manufacturing services, so clause (id) excludes the same automatically.

Conclusion

Thereby, in our opinion the position after the amendment in the law remains straightforward as given below:

a) If the treatment or process is carried out on goods belonging to a registered principal, then it amounts to job work for which the rate is mentioned in clauses (i), (ia), (ib), (ic) and (id). If not specifically mentioned under the first 4 clauses, then it falls within clause (id) for which the applicable rate is 12%.

b) If the treatment or process is carried out on goods belonging to an unregistered person, then one needs to check the clauses (ii), (iia), (iii) and (iv). If the process in relation to any goods are not specifically mentioned in the first 3 clauses, then the residuary rate of 18% should be applied as per clause (iv).

Thanks & Regards,

Shubham Khaitan

B.Com (Hons), FCA, ACS, CFA DISA (ICAI)

Partner, S. Khaitan & Associates