As per section 65(105)(zzb) of Chapter V of Finance Act 1994 as amended from time to time, taxable service means any service provided or to be provided to a client by any person in relation to business auxiliary service.
The term “business auxiliary service” has been defined under section 65(19) to mean any service in relation to [apart from others] –" production or processing of goods for,or on behalf of, the client; In view of above definition question of charging service tax on job works has arisen.
Production or Processing of goods for or on behalf of a client falls within the purview of this Service. However, if any such activity amounts to manufacture within the meaning of section 2(f) of the Central Excise Act, the same is excluded from its purview. This exclusion has been modified to state that it would apply only if the activity also results in manufacture of ‘excisable goods’. Both the words/phrases i.e. ‘manufacture’ and ‘excisable goods’ would have the same meaning as defined under the Central Excise Act.
The impact of this change would be that even if a process of manufacture is
undertaken for the client, but the resultant product does not fall under the category of excisable goods, such as alcoholic beverages, the service tax would be attracted.
PRODUCTION, MANUFACTURE AND PROCESS DISTINGUISHED
Under excise, the taxable event is manufacture or production. Hence, examination of these two terms manufacture and production is useful.
Production is a natural process by which a product is brought into existence.
For instance production of tobacco, iron ore, jute, flowers etc. Manufacture, on the other hand involves some artificial process which adds some more utility to the product, for instance, tobacco is produced and cigarettes are manufactured, similarly,sugarcane is produced and sugar is manufactured. Thus, we may conclude that every manufacture is production and every production is not manufacture. The Supreme Court in Commissioner of Income Tax vs. N.C. Budharaja & Company observed that the word production has wider connotation than ‘the word manufacture’. Every manufacture may be characterised as production but every production need not amount to manufacture.
But it may be noted that under excise, manufacture is more relevant than production since many items of production are either not excisable or exempted from duty.
What is Process?
The term process has not been defined in the Central Excise Act, 1944. The dictionary meaning of process is a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to accomplishment of some results. In the context of excise, a process is an operation or activity, which may or may not result in production/manufacture. Usually, there are series of operations, which bring into existence an item with a distinct name,character or use. For example, series of processes culminate in the production of rice; viz., ploughing, watering, sowing seeds, transplantation, weeding and harvesting. With the final process of harvesting, paddy is produced and rice, from paddy.
Similarly, some natural process produces cotton and artificial processes such as ginning, pressing, threading and so on, manufacture cloth. In both production and manufacture, certain processes are involved.
For excise purpose, mere process is not enough to call it manufacture/production. Such process/processes must bring into existence an excisable entity preferably with a distinct name, character or use. For instance, a log of wood is cut into pieces. Cutting is a process, but not manufacture. Furniture is made out of wood. The process is manufacture as it is a distinct excisable item.
Hence, we may conclude that every manufacture/production is a process and not necessarily vice versa.
WHETHER COMPUTER EMBROIDERY IS LIABLE TO SERVICE TAX:
Textile processing for or on behalf of the client has been exempted under notification No 14/2004-Service tax,dated 10-09-2004 as amended by notification no 19/2005-st dated 7-06-2005 and notification no 19/2006-ST dated 25-04-2006 w.e.f. 1-5-2006 .
Textile processing has not been defined by the Service Tax Act. Generally any process related to textile i.e. cloth folding , Dying, Printing ,washing , Polishing, Embroidery including computer embroidery can be termed as textile processing work.
So any taxable service provided to a client by any person in relation to computer embroidery shall be exempt from whole of service tax leviable thereon under section 66 of the Act.
Above notification has also exempted taxable services provided to a client by any other person in relation top the business auxiliary service, in so far as it relates to -
(a) procurement of goods or services which are inputs for the client;
(b) Production or processing of goods for,on behalf of, the client;
(c) provision of services on behalf of the client;or
(d) a service incidental or auxiliary to any activity specified in (a) to (c) above,
and provided in relation to agriculture,printing or education from the whole of service tax leviable thereon under section 66 of the said Finance Act.