St on jobwork/fabrication charges
This query is : Resolved
26 February 2014
We are a Public Limited Company doing equipment manufacturing at our Factory. We engage sub-contractors for doing certain fabrication activities inside our Factory and provide Material, Power, water and consumables. We issue order for Fabrication activity only. Please advise whether the sub-contractor is exempted from charging Service Tax under notification NO.ST 8/2005. If the Sub-contractor is a individual, whether our Company has to pay service tax under reverse charge mechanism. Kindly clarify urgently. Thanks….
26 February 2014
Job work of textile goods is exempt from service tax vide notification no. 25/2012-ST.
27 February 2014
Thanks Mr.Arun for your additional information. Our is a machinery manufacturing industry and we engage subcontractors in our premises to do a part of the manufacturing activity. They engage their own people and complete the task assigned. Whether ST is exempted to this activity also.
Please clarify.
Please clarify.
25 July 2025
Based on your query regarding **Service Tax (ST)** liability on **job work/fabrication** charges in your machinery manufacturing factory (as of the pre-GST regime), here is a detailed clarification:
---
### ✅ Applicable Service Tax Law (as of Feb 2014)
1. **Notification No. 8/2005-ST** (as amended):
* This provided exemption for job work in relation to **manufacture of goods**, subject to certain conditions.
* It was later subsumed under **Notification No. 25/2012-ST** (Mega Exemption Notification), which continued many of these exemptions.
2. **Notification No. 25/2012-ST (Sr. No. 30(c))**:
* Exempts services by way of **carrying out any intermediate production process** as job work in relation to:
* **Manufacture of goods** (if the activity amounts to manufacture as per Section 2(f) of the Central Excise Act).
3. **Definition of Job Work**:
* If the activity done by subcontractors **amounts to manufacture** (i.e., results in a new product or process per Central Excise Act), then **no service tax is payable**.
---
### ❓Is your subcontractor's activity a "manufacturing process"?
* Since your company is engaged in **machinery manufacturing**, and you engage subcontractors for **fabrication inside your factory** with material, power, etc., supplied by you, and they only supply labour/skill:
* If the subcontracted work results in **manufacture** as per Central Excise Act – **No service tax is payable** by either the subcontractor or you.
* If it **does not qualify as manufacture**, then **Service Tax is applicable**.
---
### 💡 Reverse Charge Mechanism (RCM) — if subcontractor is an individual
As per **Notification No. 30/2012-ST**, reverse charge applied in certain cases. Specifically:
* If:
* The **service provider** is an **individual or HUF**, AND
* The **service recipient** is a **body corporate (like your Public Ltd Company)**, AND
* The service is **manpower supply** or **works contract service**,
→ then **you (the company) are liable to pay Service Tax under Reverse Charge**.
---
### 📌 Summary:
| Situation | Service Tax Liability |
| ------------------------------------------------------------------------------- | --------------------------------------------- |
| If subcontracted activity **qualifies as manufacture** under Central Excise Act | **Exempt** under Notification 25/2012-ST |
| If **NOT manufacture**, and subcontractor is an **individual** | **Your company pays ST under Reverse Charge** |
| If **NOT manufacture**, and subcontractor is a **company or firm** | **They charge and pay ST normally** |
---
### ✅ Suggested Action:
1. **Evaluate** whether the subcontracted fabrication work **qualifies as manufacture**.
2. If **yes**, you are **exempt** from Service Tax.
3. If **no**, and subcontractor is an **individual**, your company must **pay ST under RCM**.
If needed, obtain a **clarification from your Excise/Service Tax Range Office**, especially since ST law interpretation depends on the nature of manufacturing activity.
Let me know if you'd like help drafting a formal letter to the department or a sample RCM calculation.
---
### ✅ Applicable Service Tax Law (as of Feb 2014)
1. **Notification No. 8/2005-ST** (as amended):
* This provided exemption for job work in relation to **manufacture of goods**, subject to certain conditions.
* It was later subsumed under **Notification No. 25/2012-ST** (Mega Exemption Notification), which continued many of these exemptions.
2. **Notification No. 25/2012-ST (Sr. No. 30(c))**:
* Exempts services by way of **carrying out any intermediate production process** as job work in relation to:
* **Manufacture of goods** (if the activity amounts to manufacture as per Section 2(f) of the Central Excise Act).
3. **Definition of Job Work**:
* If the activity done by subcontractors **amounts to manufacture** (i.e., results in a new product or process per Central Excise Act), then **no service tax is payable**.
---
### ❓Is your subcontractor's activity a "manufacturing process"?
* Since your company is engaged in **machinery manufacturing**, and you engage subcontractors for **fabrication inside your factory** with material, power, etc., supplied by you, and they only supply labour/skill:
* If the subcontracted work results in **manufacture** as per Central Excise Act – **No service tax is payable** by either the subcontractor or you.
* If it **does not qualify as manufacture**, then **Service Tax is applicable**.
---
### 💡 Reverse Charge Mechanism (RCM) — if subcontractor is an individual
As per **Notification No. 30/2012-ST**, reverse charge applied in certain cases. Specifically:
* If:
* The **service provider** is an **individual or HUF**, AND
* The **service recipient** is a **body corporate (like your Public Ltd Company)**, AND
* The service is **manpower supply** or **works contract service**,
→ then **you (the company) are liable to pay Service Tax under Reverse Charge**.
---
### 📌 Summary:
| Situation | Service Tax Liability |
| ------------------------------------------------------------------------------- | --------------------------------------------- |
| If subcontracted activity **qualifies as manufacture** under Central Excise Act | **Exempt** under Notification 25/2012-ST |
| If **NOT manufacture**, and subcontractor is an **individual** | **Your company pays ST under Reverse Charge** |
| If **NOT manufacture**, and subcontractor is a **company or firm** | **They charge and pay ST normally** |
---
### ✅ Suggested Action:
1. **Evaluate** whether the subcontracted fabrication work **qualifies as manufacture**.
2. If **yes**, you are **exempt** from Service Tax.
3. If **no**, and subcontractor is an **individual**, your company must **pay ST under RCM**.
If needed, obtain a **clarification from your Excise/Service Tax Range Office**, especially since ST law interpretation depends on the nature of manufacturing activity.
Let me know if you'd like help drafting a formal letter to the department or a sample RCM calculation.
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