Classification of service— In the instant case, the applicant is seeking advance ruling on the following question;

Whether the activity of tanning, with chemical consumption, carried out by the applicant is coming within the purview of job work chargeable to tax under the item i(e) of the Heading 9988 ie., or Manufacturing Services On Physical Inputs (Goods) owned by Others and if not what would be the applicable tax rate?

The basic issue before this authority is whether the activity or process carried out by the applicant on the goods received from its client, amounts to job work or it is supply of services (being activity of tanning) and goods (being tanning chemicals transferred in the course of tanning) to be regarded as composite supply.

In the instant case, on perusal of the invoices of job work and flowchart of the process submitted by the Applicant, it is clear that hides and skins are received from Applicant's customer for the job work of tanning and that certain tanning chemicals are added to assist the tanning process. After various processes, the raw hides and skins (Chapter 41) are converted in to finished leather (Chapter 41) and returned back to the Applicant's customer.

If the activity of the Applicant is a service by way of treatment or processing undertaken by a person on goods belonging to another registered person, it is rightly classifiable as processing of hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and as per (i)(e) (para 6.7) and applicable CGST rate is 2.5% and applicable SGST rate is 2.5%. However, if the activity of Applicant is undertaken on physical inputs (goods) which are owned by persons other than those registered under the CGST Act, then it falls within entry at item (iv) and applicable CGST rate is 9% and applicable SGST rate is 9%.

Held that— 

The activity of the Applicant is a service by way of treatment or processing undertaken on hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) belonging to another person. The applicable GST rates are as under:

(i) If the treatment or processing undertaken by the Applicant is on goods belonging to another registered person, then the applicable GST rate is 5% (CGST 2.5% and SGST 2.5%).

(ii) If the treatment or processing undertaken by the Applicant is on goods belonging to person other than those registered under CGST Act, then the applicable GST rate is 18% (CGST 9% and SGST 9%)