LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Cenvat Credit on exempted job work

Rajesh Kumar (Advocate- Tax) (7806 Points)

25 January 2009

Recently I examined a quetion- can a job worker, claimimg exemption of job work under Central Excise & Service Tax take cenvat credit on inputs/input services used in the job work.

When exemption on job work is claimed under Central Excise or Service tax (notification 8/2006), it is not an exemption beacuse duty is ultimately paid by the principal manufacturer. hence the job worker is entitled to cenvat credit on inputs/input services used in the job work. Details is there in the link;

https://www.hotfrog.in/Companies/RAJESH-KUMAR-ASSOCIATES/FullPressRelease.aspx?id=3874

Reply
Follow
Share

7 Replies

(Guest)

A job worker not paying excise duty/service tax, eventhough takes credit, cannot transfer the same to the manufacturer. The point that ultimately manufacturer pays the duty is irrelevant as the job worker cannot transfer accumulated credit to he manufacturer.

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 26 January 2009

Well Dinesh, I examined the issue.

If the job worker has his own manufacturing, he can use the accumlated Cenvat Credit for paymeny of duty on his manufactured goods. If he doesnt have own manufacturing activity, he can receive goods from the principal manufacturer on payment of duty (removal of goods as such) and pay duty using his own credit, passing on the credit to the principal manufacturer, in addition to what he received.

The other way is to not to take Service Tax exemption on job work (i.e. S T Notification 8/2006) as it is not necessary to avail conditional exemption. Then he can pay service tax on job work, utilising the credit accumlated and passing on to the principal manufacturer.

Dinesh, it never hurts to take credit.

Mohan (service) (24 Points)
Replied 15 May 2009

When both exempted and taxable goods are manufactured or services are provided there is an option to pay duty as underand avail 100% CENVAT credit :

(b) Pay amount equal to 10% of value of exempted goods (if he is ‘manufacturer) and/or 8% of value of exempted services (if he is service provider) if he does not maintain separate inventory and records – Rule 6(3)(i) w.e.f. 1-4-2008.

Q. What rate would be applicable as thereafter the rate of CE and ST has been reduced from 14% to 8% and 12 to 10% ? Is there any change ?

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 27 May 2009

But Mohan this payment of 10% is not eligible for cenvat credit.

Mohan (service) (24 Points)
Replied 08 June 2009

Originally posted by :Rajesh Kumar

I know this payment of 10% is not eligible for cenvat credit as this is being paid to avail 100% CENVAT credit on inputs.

My query is that when CENVAT is reduced to 8% is there any change in CENVAT credit rules.

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 11 June 2009

No, there is no change in the rate of amount of 10% under Rule 6 of the Cenvat Credit Rules.

S. Banerjee (Practising Cost Accountant. Core area- Central Excise. Service Tax Costing system installation including maintenance of Cost Records and Cost Audit and Management Audit mainly Revenue leakages Audit) (622 Points)
Replied 21 November 2009

Originally posted by :Rajesh Kumar

Well Dinesh, I examined the issue.
If the job worker has his own manufacturing, he can use the accumlated Cenvat Credit for paymeny of duty on his manufactured goods. If he doesnt have own manufacturing activity, he can receive goods from the principal manufacturer on payment of duty (removal of goods as such) and pay duty using his own credit, passing on the credit to the principal manufacturer, in addition to what he received.
The other way is to not to take Service Tax exemption on job work (i.e. S T Notification 8/2006) as it is not necessary to avail conditional exemption. Then he can pay service tax on job work, utilising the credit accumlated and passing on to the principal manufacturer.
Dinesh, it never hurts to take credit.

Mr. Rajesh Kumar,

Would you please explain the procedures by mentioning the Notifications in this case:-

If, the principal manufacturer arrange to supply raw material directly to the job worker's factory by mentioning the Job Worker's name as consignee and the principal manufacturer as buyer on Invoice without receiving it at his factory.

Can the Job worker avail and utilise Cenvat Credit before clearing the manufactured items in such case ? If so when the job worker raise the service bill to the manufacturer Service Tax will be applicacable or not ?

Waiting for your reply, Thanks in advance,

S. Banerjee