Cenvat credit on reverse charge mechanism

Dear Ansari,

Job work does not attract Service Tax, pl read the following;

1) We manufacture excisable goods. We send some material for job-work. Are job-workers required to pay service tax?
No service tax is payable on ‘any process amounting to manufacture or production of goods’ by your job-worker, as that activity falls under the negative list under Section 66D (f) of the Finance Act, 1944. Also, S. No. 30 (c) of notification no.25/2012-ST dated June 20, 2012 exempts ‘carrying out any intermediate production process as job-work in relation to any goods on which appropriate duty is payable by the principal manufacturer’. S.No. 30 also covers certain other activities of job-work.

2) Ours is a SSI unit manufacturing reprocessed plastic granules. We do job-work for a customer who manufactures excisable goods — i.e., plastic hangers. They send us plastic scrap/chips for processing into granules, which they use for making hangers. I want to know whether reprocessing of plastic scrap is manufacturing or whether service tax is applicable.
In your case, there is a transformation, in the sense that plastic scrap is converted into plastic granules. The process you carry out results in emergence of a new commodity as known to the market. Therefore, what you do is manufacture under Central Excise law. Clause (f) of Section 66D of the Finance Act, 1994 brings “any process amounting to manufacture or production of goods” within the ambit of the negative list of services. Therefore, only the services of job-work that do not amount to manufacture are taxable under the service tax law. As the activity you carry out amounts to manufacture, the same falls within the scope of the negative list of services, and so, you need not pay service tax.

Hence, your jobworker did not charge Service Tax.