ST on Job Work
This query is : Resolved
12 August 2009
Please Clarify anyone-
Whether service tax is applicable for Jobwork transactions (Between 100% EOU & DTA Unit):
1) We (100%EOU),will supply the materials to the Jobworker(DTA Unit) for Conversion Work and on completion of the work, they will return the finished goods.
2) Jobworker will raise processing bill for the jobwork.
3) Recently the excise authorities raise the above issue in another unit like us and requests to pay the ST on all kind of this jobwork transaction.
4) Is there any specific rule to charge the ST on Jobwork between 100% EOU and DTA Unit?
Thanks in Advance
Varathan
Whether service tax is applicable for Jobwork transactions (Between 100% EOU & DTA Unit):
1) We (100%EOU),will supply the materials to the Jobworker(DTA Unit) for Conversion Work and on completion of the work, they will return the finished goods.
2) Jobworker will raise processing bill for the jobwork.
3) Recently the excise authorities raise the above issue in another unit like us and requests to pay the ST on all kind of this jobwork transaction.
4) Is there any specific rule to charge the ST on Jobwork between 100% EOU and DTA Unit?
Thanks in Advance
Varathan
12 August 2009
Under BAS processing NOT amounting to manufacture is liable for service tax. In your case of conversion of A inot product B there is no question of ST. The only possible liability is Central Excise.
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13 August 2009
Thanks for your immediate reply.
We request your clarification on ST Notification No 8/2005 dt.1.03.2005 reg exemption of taxable service of production of goods on behalf of client referred in sub-clause (v) of clause (19) of sec.65 of the Finance Act
Explanation- (ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of excise wholly exempt. -what it means?
We (100% EOU) are moving the goods by way of In-Bond, (i.e.) exempted raw materials to the job worker (DTA Unit) for part production of our goods. The same is returned back to us for further processing at our factory, meant for export.
Jobwork details- we give PP woven Fabric and PPC Granules for Lamination work (both are covered under the same CEX chapter heading 39269080).
Does this transaction is attracts Service tax?
Please Clarify.
Thanks in advance
We request your clarification on ST Notification No 8/2005 dt.1.03.2005 reg exemption of taxable service of production of goods on behalf of client referred in sub-clause (v) of clause (19) of sec.65 of the Finance Act
Explanation- (ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of excise wholly exempt. -what it means?
We (100% EOU) are moving the goods by way of In-Bond, (i.e.) exempted raw materials to the job worker (DTA Unit) for part production of our goods. The same is returned back to us for further processing at our factory, meant for export.
Jobwork details- we give PP woven Fabric and PPC Granules for Lamination work (both are covered under the same CEX chapter heading 39269080).
Does this transaction is attracts Service tax?
Please Clarify.
Thanks in advance
19 August 2009
Pl let us know the actual process for determining whether manufacture exists?
Further under BAS textile processing is exempt under Not 14/2005.
Further under BAS textile processing is exempt under Not 14/2005.
19 August 2009
Thanks. our Jobwork is as follows:
We give PP Woven fabric and PP Coating granules for lamination work with the jobworker( Chapter Head 3923-both items).
On completion of jobwork(lamination work), the said goods are returned to us for making PP Woven Bags(chapter head-3923), meant for exports. All the above are moving under In-bond, without duty element,since we are a 100% EOU.
During the recent audit, the authorities are demanding the service tax for this transaction. Is there demand is correct or not? please clarify ?
Thanks
Varathan
We give PP Woven fabric and PP Coating granules for lamination work with the jobworker( Chapter Head 3923-both items).
On completion of jobwork(lamination work), the said goods are returned to us for making PP Woven Bags(chapter head-3923), meant for exports. All the above are moving under In-bond, without duty element,since we are a 100% EOU.
During the recent audit, the authorities are demanding the service tax for this transaction. Is there demand is correct or not? please clarify ?
Thanks
Varathan
25 July 2025
You're raising a very important and common concern that has impacted several 100% EOUs in India — specifically around **Service Tax liability on job work transactions**, particularly **under Notification No. 8/2005-ST dated 1.3.2005** and subsequent clarifications.
Let’s break down the issues step by step and address whether **Service Tax (ST)** is applicable in your case.
---
### ✅ Basic Transaction Summary:
* You are a **100% EOU** (Export Oriented Unit).
* You send raw materials **in-bond** to a **Domestic Tariff Area (DTA) unit** for **job work (lamination)**.
* The processed material is **returned to your EOU for further processing**, ultimately to be **exported as finished goods**.
* **Jobworker** raises a bill for processing charges.
* Authorities are demanding **Service Tax** on the job work.
---
### 🔍 Key Legal Points:
#### 1. **Nature of Job Work** – Manufacture or Not?
* If the job work **amounts to manufacture** under **Section 2(f) of the Central Excise Act**, **Service Tax is NOT leviable**.
* If it **does not amount to manufacture**, then it may fall under the taxable category of **Business Auxiliary Service (BAS)** (Section 65(19) of Finance Act, 1994) — specifically “production or processing of goods on behalf of the client.”
**Therefore, determining whether the process is "manufacture" is the first and most crucial point.**
---
### 🔎 Notification No. 8/2005-ST (dated 1.3.2005):
This notification **exempts** taxable services related to **production or processing of goods for another person** (i.e., job work), provided:
* The goods are **excisable**, and
* **Excise duty is payable** on the final goods produced.
However, the **Explanation (ii)** to this Notification says:
> “Appropriate duty of excise” **shall not include**:
>
> * Nil rate of duty, or
> * Fully exempted goods.
🔴 **Problem**: You are a **100% EOU**, and your clearances are exempt from excise under customs/excise notifications (in-bond, export).
Thus, the **final goods are not charged excise duty**, meaning **you don’t meet the criteria of “appropriate duty”** as defined in the exemption.
---
### 📌 Implication in Your Case:
* Since **no excise duty** is paid on the final product (because it is exported under bond), the exemption under Notification 8/2005-ST **may not apply**, **even if the process amounts to manufacture**.
* Hence, **Service Tax could be demanded** if the process does **not amount to manufacture**, or the exemption does **not strictly apply**.
---
### ✅ However: There are Clarifications & Judgments
* **CBEC Circular No. 80/10/2004-ST** clarified that job work that amounts to manufacture is **not liable for Service Tax**.
* **If lamination amounts to manufacture**, then even if final product is duty-free (due to export), Service Tax **should not be levied**.
* In some **CESTAT decisions**, it was held that if the process is **integrated with final export activity**, and manufacturing takes place eventually, **job work should not be taxed**.
---
### ✅ Textile Processing Exemption – Notification 14/2004-ST:
* **Textile processing** is exempted.
* But **plastic lamination** on PP woven fabric **may not fall under textile processing** — especially if your goods are under **CH 3923** (Plastics), not 63 (textiles).
Hence, **Notification 14/2004-ST** may **not apply** here.
---
### 🔚 Conclusion:
Based on current and past interpretations:
| **Criteria** | **Result** |
| ------------------------------------ | ------------------------------------------------------------------- |
| Job work amounts to manufacture | ✅ No Service Tax |
| Goods are fully exempt/Nil duty | 🔴 Exemption under Not. 8/2005 not available |
| You are 100% EOU with export | 🔶 Still may be asked to pay ST due to "no appropriate duty" clause |
| Process not amounting to manufacture | 🔴 Service Tax under BAS applicable |
---
### ✅ Recommendation:
1. **Determine if lamination is "manufacture"** under Central Excise Act via:
* Excise rules
* Past SC/CESTAT rulings on lamination of plastic fabrics
2. If not manufacture, seek coverage under **Notification 8/2005-ST**, but may not apply due to EOU exemption.
3. Consider legal opinion or representation via **Customs/Excise Consultant** or **file appeal** with CESTAT if demand is already raised.
Let me know if you want help drafting a representation or reply to the audit objection.
Let’s break down the issues step by step and address whether **Service Tax (ST)** is applicable in your case.
---
### ✅ Basic Transaction Summary:
* You are a **100% EOU** (Export Oriented Unit).
* You send raw materials **in-bond** to a **Domestic Tariff Area (DTA) unit** for **job work (lamination)**.
* The processed material is **returned to your EOU for further processing**, ultimately to be **exported as finished goods**.
* **Jobworker** raises a bill for processing charges.
* Authorities are demanding **Service Tax** on the job work.
---
### 🔍 Key Legal Points:
#### 1. **Nature of Job Work** – Manufacture or Not?
* If the job work **amounts to manufacture** under **Section 2(f) of the Central Excise Act**, **Service Tax is NOT leviable**.
* If it **does not amount to manufacture**, then it may fall under the taxable category of **Business Auxiliary Service (BAS)** (Section 65(19) of Finance Act, 1994) — specifically “production or processing of goods on behalf of the client.”
**Therefore, determining whether the process is "manufacture" is the first and most crucial point.**
---
### 🔎 Notification No. 8/2005-ST (dated 1.3.2005):
This notification **exempts** taxable services related to **production or processing of goods for another person** (i.e., job work), provided:
* The goods are **excisable**, and
* **Excise duty is payable** on the final goods produced.
However, the **Explanation (ii)** to this Notification says:
> “Appropriate duty of excise” **shall not include**:
>
> * Nil rate of duty, or
> * Fully exempted goods.
🔴 **Problem**: You are a **100% EOU**, and your clearances are exempt from excise under customs/excise notifications (in-bond, export).
Thus, the **final goods are not charged excise duty**, meaning **you don’t meet the criteria of “appropriate duty”** as defined in the exemption.
---
### 📌 Implication in Your Case:
* Since **no excise duty** is paid on the final product (because it is exported under bond), the exemption under Notification 8/2005-ST **may not apply**, **even if the process amounts to manufacture**.
* Hence, **Service Tax could be demanded** if the process does **not amount to manufacture**, or the exemption does **not strictly apply**.
---
### ✅ However: There are Clarifications & Judgments
* **CBEC Circular No. 80/10/2004-ST** clarified that job work that amounts to manufacture is **not liable for Service Tax**.
* **If lamination amounts to manufacture**, then even if final product is duty-free (due to export), Service Tax **should not be levied**.
* In some **CESTAT decisions**, it was held that if the process is **integrated with final export activity**, and manufacturing takes place eventually, **job work should not be taxed**.
---
### ✅ Textile Processing Exemption – Notification 14/2004-ST:
* **Textile processing** is exempted.
* But **plastic lamination** on PP woven fabric **may not fall under textile processing** — especially if your goods are under **CH 3923** (Plastics), not 63 (textiles).
Hence, **Notification 14/2004-ST** may **not apply** here.
---
### 🔚 Conclusion:
Based on current and past interpretations:
| **Criteria** | **Result** |
| ------------------------------------ | ------------------------------------------------------------------- |
| Job work amounts to manufacture | ✅ No Service Tax |
| Goods are fully exempt/Nil duty | 🔴 Exemption under Not. 8/2005 not available |
| You are 100% EOU with export | 🔶 Still may be asked to pay ST due to "no appropriate duty" clause |
| Process not amounting to manufacture | 🔴 Service Tax under BAS applicable |
---
### ✅ Recommendation:
1. **Determine if lamination is "manufacture"** under Central Excise Act via:
* Excise rules
* Past SC/CESTAT rulings on lamination of plastic fabrics
2. If not manufacture, seek coverage under **Notification 8/2005-ST**, but may not apply due to EOU exemption.
3. Consider legal opinion or representation via **Customs/Excise Consultant** or **file appeal** with CESTAT if demand is already raised.
Let me know if you want help drafting a representation or reply to the audit objection.
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