18% GST on Manufacturing Process on goods of unregistered person.

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18% GST on Manufacturing Process on goods of unregistered Person

Textile, Jewellery, etc. manufacturing and other processes on goods belonging to other unregistered person clarified to be taxable @ 18%

Circular No. 126 dated 22-11-2019 has clarified that, if manufacturing services are performed on goods belonging to unregistered persons, then tax rate shall be 18%.

Sectoral Impact-

Apart from textile, jewellery other sectors like footwear, leather goods, food products, clay bricks, handicraft goods manufacturing for unregistered persons shall also invite 18% tax rate as compared to 5% tax rate if manufacturing is done for registered person.

Changes w.e.f 01-10-2019-

W.e.f. 01-10-2019, Residuary Job Work for registered person is taxable @ 12% .Diamonds Job work for registered person is taxable @ 1.5%.

Sectors not affected-

However, the Tax rate for the printing of newspapers, books, and Items falling under Chapter 48 and 49 and tailoring service carried out for both registered as well as an unregistered person shall remain at  5%.

Thin line differences in Manufacturing, Job work and repair-

Repair services are already taxable @ 18%, irrespective of being carried out for the registered or unregistered person. All other Job work processes which are not in nature of manufacture might also get taxed @ 18%. There is a thin line difference between manufacture, job work and repair and there may be overlaps also. Job work may involve both manufacturings as well as non-manufacturing processes. Repair is carried out on something which is defective.

Textile sector-

Processes in the textile industry like ginning, spinning, weaving, mercerizing, bleaching, printing, sizing, desizing, processing, dyeing finishing, cleaning, pressing,, coloring and laundry services might come under scanner, which is the second-largest employer of the country.

Need to make representation-

Clarification is in wake of notification 20/2019-CTR dated 30-09-2019 changing tax rates for residuary job work for registered persons which is not as per recommendations of GST Council dated 20-09-2019 which sought to change tax rates for engineering industry only. This appears to an unintended outcome of the Circular, especially on textile, jewelry, footwear, leather goods, food products, clay bricks, and handicraft goods industry. Relevant Industries needs to make representation on the issue.

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