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Contract comprising of job work and works contract is to be treated as Mixed Supply and to attract higher rate of GST: Says AAR

Submissions of the applicant

The applicant states that the Principal is engaged in the reconstruction of the Majherhat Railway Overbridge (ROB). The Principal has contracted with the applicant for fabrication, painting and transportation at the site of the ‘Viaduct and Cable Stay’ part of the ROB. The applicant submits that the activities in terms of the above contract should be treated as job work. It provides a copy of the agreement.

The Principal delivers the raw materials for fabrication at the applicant’s unit free of cost. The fabrication work is inspected at different stages by the designated engineer/ client/Principal. The applicant is required to paint as per the approved specification. But, the scope of painting is restricted to surface preparation, metal spraying and one coat of paint at the shop. The final coat of paint will be done on-site after the completion of the erection. On receipt of the fabricated structures at the site, the Principal will do weighment, and the work shall be measured as per the above weighment . After completion of the fabrication work, the applicant has to return the excess materials to the Principal.

The Principal sends physical inputs (goods) to the applicant. Both the Principal and the applicant are registered taxable persons (RTP) under the GST Act. The applicant has to do fabrication work on the goods so provided and return the Principal the excess material. As regards the fabrication job, the applicant’s liability ends after delivery of the fabricated structures at the site. But it needs to apply a coat of paint after the structures are erected.

The applicant’s contention is that their job work attracts GST @12% under Sl No. 26(id) of the Rate Notification.

Submissions of the revenue

The concerned officer raises the point that the agreement does not clarify who would supply the paints. If the applicant supplies the paint, the activity should be regarded as works contract. On the other hand, if the Principal provides the paint, the agreement should be treated as that of job work. The concerned officer also likes to focus on the issue that performance of fabrication, paintings and transportation should come under the ambit of mixed supply and should attract the highest rate of tax.

Held by AAR

The contract combines two separate services: (1) the job work of fabrication of steel structures and delivery thereof at the site with incidental supply of paint, and (2) works contract of applying a coat of paint to the steel structures after erection. Although they are supplied in conjunction with each other at a single price, they are not naturally bundled. The job work of fabrication ends with the delivery of the fabricated structures at the site. The works contract of applying paint to the erected structures is a separate supply made in conjunction with the job work. It is, therefore, a mixed supply.

The taxability of the mixed supply depends on the applicable rate of tax on each of the two supplies. Being supply of the manufacturing service (SAC 9988) to a registered taxable person, the supply of the job work is taxable @ 12% in terms of Sl No. 26 (id) of the Rate Notification. On the other hand, The Principal (M/s S P Singla Construction Pvt Ltd) is the main contractor engaged by the Public Works (Roads) Department of the State Government for the reconstruction of the Majherhat ROB. The applicant’s works contract service, being that of a sub-contractor engaged by the main contractor, therefore, is taxable @ 12% in terms of Sl No. 3(ix) of the Rate Notification. The mixed supply is, therefore, taxable @ 12% in terms of the provisions under section 8(b) of the GST Act.

The applicant supplies a mixed supply constituting of the job work of fabrication of steel structures and the works contract of applying paint to the erected steel structures. It is taxable @ 12% in terms of the provisions under section 8(b) of the GST Act.

Even if job worker charge higher rate of Gst principal is eligible to credit.

Hence revenue neutral will be applicable.

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