Recently a news update was flashing in every news article, website and media. The update relates to the recent announcement by Modi Government wherein the Tax rate on Jobwork was changed from earlier 18% to 12%. It was a sigh of relief for a wide range of small taxpayers who were buried under humongous GST rate of 18% which made their jobwork service expensive for principals.
However in this article we are going to unveil a very major aspect of this update that a lot of tax professionals have missed, which may attract a lot of litigation and unwanted penalties for their clients down the line.
The service of Jobwork has been taxed in the HSN code 9988. Various tax rates in this chapter are as follows.
Now as it is evident from entry (id) in Chapter 9988 that, ANY JOBWORK OTHER THAN (i), (ia), (ib) & (ic) will attract the new GST rate of 12%. This entry previously had the tax rate of 18%. Therefore taxpayers have assumed that tax on all other types of Jobworks other than covered in (i), (ia), (ib) & (ic) will attract 12% GST rate. But this is not true.
Job work has been 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.”
Therefore it becomes clear that, any process undertaken on “goods belonging to another person” will be considered as jobwork only if that another person is a person registered under GST Act. Therefore any process undertaken on goods belonging to a person not registered under GST shall not be construed as Jobwork under GST law and the same will not be covered in entry (id), as the entry (id) specifically covers services provided by way of Jobwork.
So the question arise as to what about jobwork done on goods belonging to unregistered person?
Such services will be covered in entry (iv) of the same Chapter ie:-9988, which inter alia reads as under:-
“Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above.”
As evident from the snapshot of entry (iv) in the Table, the tax rate corresponding to the entry (iv) is 18% and not 12%. Therefore, a gst rate of 18% will be levied to jobwork service provided to persons other than registered persons. So a proper understanding of the entries will be helpful in concluding that Jobwork as a service needs proper classification under GST law and a dual rate of 18% and 12% exists.
The same is also clarified in Circular No. 126/45/2019-GST as attached below.
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