The advance ruling application by Shree Avani Pharma sought clarity on whether their job work service of converting raw materials like Nitroantraquinone, Monomethylamine and Bromine into Anthraquinone derivatives would fall under entry 26(id) of GST notification 11/2017 attracting 12% GST. This article summarizes the key aspects of the advance ruling application and the authority’s decision.
Background
i) Shree Avani Pharma is a partnership firm engaged in job work of converting raw materials owned by other registered GST clients into Anthraquinone derivatives.
ii) The client for whom job work is done is M/s Profile Bio-Chemical Pvt Ltd, a registered GST entity.
iii) During the job work, ownership of goods does not change and remains with the client M/s Profile Bio-Chemical Pvt Ltd.
iv) The process involves mixing the raw materials Nitroantraquinone, Monomethylamine and Bromine with water, heating, adding Bromine, distillation in solvent, filtration, chilling and centrifugation to get Anthraquinone derivatives.
v) Shree Avani Pharma believes their service falls under SAC 9988 attracting 12% GST.
Query by Shree Avani Pharma
Whether the job work service of converting raw materials like Nitroantraquinone, Monomethylamine and Bromine into Anthraquinone derivatives falls under entry 26(id) of GST notification 11/2017 attracting 12% GST?
Relevant Legal Provisions
i) Section 2(68) of CGST Act defines “job work” as any treatment or process undertaken by a person on goods belonging to another registered person.
ii) Entry 26(id) under SAC 9988 covers job work services as defined in Section 2(68).
iii) Entry 26(iv) covers manufacturing services on goods owned by unregistered persons.
iv) Circular 126/45/2019-GST dated 22-11-2019 clarifies the demarcation between entry 26(id) and 26(iv).
Discussion by Advance Ruling Authority
i) Shree Avani Pharma is carrying out processing of raw materials owned by M/s Profile Bio-Chemical Pvt Ltd, a registered GST entity.
ii) Entry 26(id) covers job work where inputs are sent by a registered person.
iii) Entry 26(iv) covers manufacturing services where inputs are sent by an unregistered person.
iv) Since the processing is done on goods owned by a registered person, it qualifies as job work under Section 2(68) and falls under entry 26(id).
v) Entry 26(id) covers job work services attracting 12% GST.
Ruling by Advance Ruling Authority
The conversion process undertaken by Shree Avani Pharma qualifies as job work under Section 2(68) since the inputs are owned by a registered GST entity. Therefore, the service falls under entry 26(id) of notification 11/2017 attracting 12% GST under SAC 9988.
Conclusion
The advance ruling has provided clarity that conversion services undertaken on inputs owned by registered GST entities would fall under the definition of job work and attract 12% GST under entry 26(id). This eliminates ambiguity on the applicable GST rate for such services.
AAR Gujarat GST Order dated 03/11/2023: AAR Settles 12% GST Rate for Shree Avani Pharma’s Job Work