Query on service tax

Dear Nitin,

Job work comes under service tax ambit under "Business Auxiliary Services" head.

Regarding registration, it has to be done if taxable value of service exceeds Rs 9 lakhs or service tax is payable irrespective of whether exemption is claimed or not.

Further,

Step 1: One needs to first decide whether the job work done by the worker amounts to manufacture or not.

Step 2: If activity amounts to manufacture, than Service Tax is not payable as per Central Excise Law. Further, if activity does not amount to manufacture, than Service Tax is payable by the job worker, however, still benefit of Notification 8/2005 can be taken which exempts production or processing of goods on which excise duty is payable.

Notification explanation clarifies :- The expression “production of goods” means working upon raw materials or semi-finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

Further going throught case laws of South India Wire Products, Polypack, National Standard and Shri Uma Foundries, the common ratio emerges, that cenvat credit can be claimed on input services used in production by job worker.

Benefit of 8/2005 is optional. Exemption should be avoided, when job work wants to avail cenvat credit on output goods and wants to pass on the benefit of cenvat credit to buyer.

Regards,

Jagrut

pls tell me the details to get through servicetax in ipcc xams

@ jagrut:

In this case, Job worker gets Dyes and other Ram Material from Principal Manfacturer  and moulds them by using his labour and machines. These moulded goods are further used by Principal in manufacture os Excisable Goods on which excise duty is paid by principal.

now my confusion is :

1) is this activity amount to manufacture considering that Job  worker is only using his labour and machines ( he gets RM from principal and returns the moulds to him) and just gets labor and electricity charges.

2) If this working by Job worker amounts to manufacture then is it necessary for Job worker to get regsitration under Excise

3) If this working by job worker does not amount to manufacture then whether service tax is payable by Job worker on its services and to get registration under ST assuming only this year value of working exceeded rs. 9 lakh and even when Excise duty is paid by principal over Final Goods.

Hi Nitin,

1)The test whether an activity amounts to manufacture or not depends on whether a new article having a distinct name, character or use emerges (Case of Delhi Cloth and General Mills Co). In your case, moulded goods produced from using dyes, labour and machine, must be partaking a character distinct from the raw material. So, it amounts to manufacture. 

2) If it is manufacture, than it is not a service. If it is not a service, than question of service tax does not arise. So, no registration is required for Service Tax.

However, now a different question arises - is excise duty payable by job worker?

If principal manufacturer supplies raw material furnishing "declaration under Notification 214/86" to ACCE under job worker's jurisdiction, exempting job worker from paying excise duty, plus, those goods are returned back to manufacturer, than job worker does not have to pay excise duty too.

If no declaration given by principal, than job worker must pay excise duty.

Further, if ED payable than transaction value = RM Value + Job work(Conversion) charges + Profit margin of job worker

Regards,

Jagrut

Hello jagrut,

You have rightly mentioned the test of manufacture. (DCM case). I must acknowledge you have a good command over Indirect Taxes.

I agree that it has to be a manufacturing activity. Now, is there a need for Job worker to get registered under Excise.

Moreover, assuming that working by Job worker does not result into Excisable Goods. What will be the answer to above question in this case? ( Principal mfr. pays ED on Final goods, as his goods which he manufactures bu using Job worked goods result into excisable Goods)

Sec 6 /Rule 174 of CEA says every manufacturer who is liable for payment of ED must get registered. So, if job worker does not have to pay ED, job worker is not required to be registered.

Further, if principal wants to sell goods on which job work has been done, directly from job worker's premises, than principal should ask for permission from  ACCE under principal's jurisdiction. Even in this case, where removal is from job worker's premises, registration of job worker is not required unless ACCE sets a condition that "registration must be done before clearance."

Rule 4(6) of CCR, 2004 clarifies DCCE/ACCE, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker."

Second part of your question, is not clear to me. 

Well, thanks but I am not an expert, I am just a student of CA Final.

The second part meant : suppose, job worker works on RM supplied to it by principal and that working does not result in maufacturing of excisable Goods ( i.e. the resultant goods are not mentioned in CETA) and prinicipal again uses these Goods in further manufacturing which results in excisable goods and thus pays ED on them.

In this case, what will be the implications for Job worker? Will this job work will be classified as manufacturing or service?

Is the job woker required to get registration under Excise or service tax in this case?

Hi,

Can someone on this forum kindly explain, or provide a Whitepaper depicting the whole concept of 'Service Tax', together with the practical points to be observed, including Registration, Collection and Payment of Service Tax, when and how to go about filing of Service Tax Returns, Penaties/Defaults etc? I think if we have such a process/documen in place, it would help us all in discharging our responsibilities towards Service Tax. Thanks Gladwyn

@ Nitin

As per Section 3 of CEA, goods not mentioned in CETA imply non-excisable goods. So job worker manufactures non-excisable goods. The activity is manufacture has already been concluded earlier.

As per Finance Act 2009, amendment has been made to Finance Act, 1994 to exclude "manufacture of excisable goods" from the purview of Business Auxiliary Services, which implies that "manufacture of non-excisable goods" is covered under service tax. 

Now, it can be argued why service tax on "manufacture" of non-excisable goods. That goes against the basic principle of taxing "services" and not taxing "manufacturing activities" under "Service Tax".

Personally my logic is, few reasons for including "manufacturing of non-excisable goods" under the ambit of service tax might be that, almost all goods are covered under CETA, if they are not it means they are either not goods, or not marketable, or immovable, or covered under some other Act, or not manufactured anywhere.

So, "manufacturing of non-excisable goods" implies providing service indirectly. Also, in real life, coming across a case where movable goods are not mentioned in CETA, yet it is a manufacture are extremely rare.

Also, basic principle is to avoid double taxation, but also to avoid NO taxation on commercial activity. 

Registration will be required in this case under Service Tax as value of "taxable service" exceeds Rs 9 lakhs in your example. However, now Notification 8/2005 comes into play, because final goods of principal are excisable. In such an event job worker can still avail exemption under Notn 8/2005 and avoid paying service tax.

Now, you can modify your example - what if job worker produces excisable goods but such activity is not manufacture and principal produces non-excisable or Nil rated or wholly exempted goods?

In such an event, registration will be under Service Tax (because not manufacture), but Notification 8/2005 CANNOT come into play (because it applies only if principal manufactures goods on which excise duty is "PAYABLE").

@ Gladwyn

For basic knowledge on service tax you can read FAQ of Govt website on Service Tax. https://www.servicetax.gov.in/faq_30sept10.pdf

Thank you very much Jagrut. Really nice explanation. :)