GST on Chilli Grinding Job Work Services: Karnataka AAR Disposes Application as Withdrawn
Overview of the Case
A recent development before the Karnataka Authority for Advance Ruling (AAR) involved a matter concerning the applicable GST rate on job work services related to the grinding of dry chilli into chilli powder. The case pertained to M/s BD Patil Enterprises, a Karnataka-based entity engaged in providing such job work services, where the principal customer supplied the raw material. The applicant had originally approached the AAR seeking clarity on the correct GST classification and tax rate applicable to these services. However, the application ultimately could not proceed to a ruling on merits, as the applicant chose to withdraw it citing ongoing appellate proceedings.
Background: Who Is the Applicant?
M/s BD Patil Enterprises, located at #211, Gummanahalli Road, Byadgi, Haveri, Karnataka – 581106, holding GSTIN 29AAJFB7735Q1ZL, filed an application for Advance Ruling under Section 97 of the Central Goods and Services Tax (CGST) Act, 2017, read with Rule 104 of CGST Rules, 2017, and correspondingly under Section 97 of the Karnataka Goods and Services Tax (KGST) Act, 2017, read with Rule 104 of KGST Rules, 2017. The application was submitted in Form GST ARA-01, with the prescribed fee of Rs. 5,000/- each paid under the CGST Act and the KGST Act.
The enterprise is principally engaged in job work services involving the grinding of dry chilli into chilli powder. In this business model, the customers supply the raw material (dry chilli), and the applicant provides only the grinding service, which is the value-added activity. This is a classic job work arrangement under GST law.
The Question Raised Before the Karnataka AAR
The core issue for which the applicant sought an advance ruling was:
Whether the job work charges for grinding of dry chilli into chilli powder — where the raw material is supplied by the customer and only the grinding service is provided — are correctly classifiable under SAC Code 9988, Serial No. 26(f), and taxable at 5% GST?
This is a significant question for the chilli processing industry, particularly in regions like Byadgi in Haveri district, which is one of India's most prominent chilli trading and processing hubs. Numerous small and medium enterprises in this belt are engaged in similar job work operations, and the applicable GST rate directly impacts their cost structure and compliance obligations.
The GST Rate Dispute: 5% vs. 18%
At the heart of this matter lies a fundamental disagreement between the applicant and the GST department regarding the correct rate of tax: