AAR: 18% GST applicable on Surface Coating on customers' Old or used Goods

AAR: 18% GST applicable on Surface Coating on customers' Old or used Goods

The Maharashtra Authority of Advance Ruling (AAR) held that 18 percent GST applicable on activity of surface coating on old, worn out or used goods received from customers.

The applicant, Oerlikon Balzers Coating India Pvt. Ltd., an Indian subsidiary of Oerlikon Balzers AG, provides surface coating services to its customers with respect to various goods like tools, inserts, semi-finished goods, capital goods and so on.

To enhance their life, efficiency, strength and performance, the goods are coated with tanium, chromium, aluminum and likewise. The applicant undertakes surface coating on semi-finished/ original and old and worn out goods, which are received from the customers. The manufacturing process of semi-finished/original tools involved Gear cutting, drilling, sharpening, coating, cleaning, inspection and so on. The process of coding is outsourced by such tool manufacturers to the Applicant. Coating is therefore one of the processes involved during the manufacturing of semi-finished or original tools.

The process of coating old, used or worn out goods remains the same. But the assumed goods are not sent by the customers for carrying out any part of the process of manufacturing, instead to restore the functionality of the said tools, hence make them reusable for such customers. One additional process required for such an old and worn out tool is re-sharpening, which is done by the applicant themselves or outsourced to third parties. The activities undertaken by the applicant are in the nature of job work' as defined under the Central Goods and Services Tax Act, 2017.

The applicant has sought the advance ruling on the issue if activity of surface coating undertaken by the Applicant in Maharashtra on old, worn out or used goods received from customers is classifiable under service accounting code 9988 more specifically under code 998898. Whether the job work activity chargeable to tax at 12 per cent in terms of entry no. 26(id) of Notification 11/2017 Central Tax (Rate) as amended or under Service accounting code 9987 more specifically under code 998729 as repairs chargeable to tax at 18 percent in terms of entry no. 25(ii) of Notification no 11/2017.

Yet another issue raised was Whether activity of surface coating undertaken by the Applicant in Maharashtra on original/new goods received from Customer is classifiable under service accounting code 9988 more specifically under code 998898 as job work activity chargeable to tax at 12 percent in terms of entry no. 26(id) of Notification 11/2017 Central Tax (Rate) as amended or at 18 percent in terms of entry no. 26(iv) of Notification no. 11/2017.

The coram of Rajiv Magoo and T.R.Ramnani ruled that the activity of surface coating undertaken by the Applicant on original/new goods received from Customer (tool manufacturers and not end users) is classifiable under service accounting code 9988 more specifically under code 998898 as job work activity. It is chargeable to tax at 12 percent in terms of entry no. 26(id) of Notification 11/2017 Central Tax (Rate) dated 28th June, 2017, as amended.

"The activity of surface coating undertaken by the Applicant on old, worn out or used. goods received from Customers (end users) is classifiable under service accounting code 9987 as repairs chargeable to tax at 18 percent in terms of entry no. 25(ii) of Notification no. 11/2017-CTR dated 28th June, 2017, as amended," the AAR said.