Tax rate for manufacturing services covered under entry at item (iv) of Notification No. 11/2017-Central Tax (Rate) dt. 28.06.2017
The Govt. of India has issued Circular No.126/45/2019-GST dt. 22.11.2019 duly clarifying scope of the notification entry at item (id) related to job work, under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dt. 28.06.2017 which 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%. It is stated that the doubts were raised weather the entry at item (id) under heading 9988 inserted with effect from 01-10-2019, prescribes 12% GST rate for all services by way of job work, makes the entry at item (iv) which covers “manufacturing services on physical inputs owned by others” with GST rate of 18%, redundant.
In the said circular it is clarified that the 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.”
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) dt. 28.06.2017. Entry at item (id) covers only job work services as defined in section 2 (68) of CGST Act, 2017 i.e. 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.
It is observed that the later part of the clarification has created confusion in the mind of job workers as it mentions that the physical inputs are owned by persons other than those registered under the CGST Act. It is learnt that some of the job workers who are engaged in contract manufacturing activities of pharmaceutical products where physical inputs are owned by other registered person under the CGST Act, have changed their tax rate from 18% to 12%. However, after examining the amendment made to notification no.11/2017 with effect from 01.10.2019 it is felt that the said amendment is not applicable to the job worker who is engaged in contact manufacturing services for other registered person in view of the following
The entries in the Notification No. 11/2017-Central Tax (Rate) dt. 28.06.2017 for heading 9988 amended from time to time till date read as under:
| Heading 9988 (Manufacturing services on physical inputs (goods) owned by others)
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(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)]109; [(c) all products [,other than diamonds,]110 falling under Chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975);]111 (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]112 (e) Processing of hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975). [(ea) manufacture of leather goods or foot wear falling under Chapter 42 or 64 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975) respectively;]113 [(f) all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975); (g) all products falling under Chapter 23 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975), except dog and cat food put up for retail sale falling under tariff item 23091000 of the said Chapter; (h) manufacture of clay bricks falling under tariff item 69010010 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975);]114 [(i) manufacture of handicraft goods.
Explanation.- The expression ‘handicraft goods’ shall have the same meaning as assigned to it in the notification No. 32/2017 -Central Tax, dated the 15th September, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 1158 (E), dated the 15th September, 2017 as amended from time to time |
2.5 |
| [(ia)Services by way of job work in relation to- (a) manufacture of umbrella; (b) printing of all goods falling under Chapter 48 or 49, which attract CGST @ 6per cent |
6 |
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| [(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 (51of 1975); |
0.75 |
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| (ic) Services by way of job work in relation to bus body building;
[―Explanation- For the purposes of this entry, the term ―bus body building‖ shall include building of body on chassis of any vehicle falling under chapter 87 in the First Schedule to the Customs Tariff Act, 1975] |
9 |
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| (id) Services by way of job work other than (i), (ia), (ib) and (ic) above |
6 |
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| [(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 |
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| [(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 |
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| [[(iii) Tailoring services |
2.5 |
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| [(iv) Manufacturing services on physical inputs (goods) owned by others, other than [(i), (ia), [(ib), (ic), (id)] and [(ii), (iia), (iii) above] |
9 |
It would be observed that the entry at item (id) under heading 9988 prescribing 12% GST rate for job work services has no nexus with the entry at item (iv) prescribing 18% GST rate for manufacturing services on physical inputs owned by others. As per section 2(68) of CGST Act, ‘Job work means any treatment or processing undertaken by a person on goods belonging to another registered person’. In the said Act, manufacturing services are not defined. However, as per section 2(72), ‘Manufacture means processing of raw materials or inputs in any manner that results in immergence of new product having a distinct name, character and use’. In the case of contract manufacturing services the principal manufacturer who is also registered under the CGST Act, supplies raw materials or inputs to the job worker who in turn processes the said inputs which results in immergence of new product having distinct name, character and use. Thus there are two category of job workers i.e. (1) the job worker who processes the inputs belonging to other registered person and returns him the processed goods for further processing is covered under the entry at item (id) and (2) the job worker who processes the inputs belonging to other registered person in such a manner that results in immergence of new product having a distinct name, character and use and returns him the said new product is covered under the entry at item (iv). Such contract manufacturing services are broadly classified as under.
998842 – Chemical product manufacturing services
This service code includes basic chemicals manufacturing services, fertilizer manufacturing services, agrochemical product manufacturing services, paint manufacturing services, soap, detergents, cleaning preparations and perfume manufacturing services, manmade fibre manufacturing services and other chemical products manufacturing services n.e.s.
998843 – Pharmaceutical product manufacturing services
In view of the above, after amendment to Notification No. No. 11/2017-Central Tax (Rate) dt. 28.06.2017, there is no change in rate of tax for the job work services provided by contract manufacturer covered under the entry at item (iv) and the tax rate would be continued to be 18%
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Many thanks for this article. Indeed it helped a lot.