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Service tax on contract manufacture/job work

Naveen Rishi Kumar (Director) (53 Points)

20 February 2015

Is there any service tax liability on the processing charges paid to contract manufacturer/job work contractor? If yes, then under which notification?

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4 Replies

Vikas (CA) (1135 Points)
Replied 20 February 2015

There is no service tax on process amounting to manufacture as per Section 66D(f) of the Finance Act, 1994.

Further, there are certain exemptions also available for which, please refer to notification no.25/2012-ST dated 20 June 2012.

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sudarshan (CA) (745 Points)
Replied 21 February 2015

paying of processing charges alone may not qualify for exemption under manufacturing as it is pure labour charges. He should procure RM and then convert. Otherwise job work in relation to intermediate production process , can be looked into.

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Raghuveer (Executive) (167 Points)
Replied 21 February 2015

With reference to your query, 'any process amounting to manufacture or production of goods' is covered under clause 'f' of Section 66D of Finance Act,1994 (Service Tax parent law), which provides the negative list of services which are exempt from levy of Service Tax.

As per section 65B(40), "process amounting to manufacture or production of goods" means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force;

Therefore if the process carried out by the job worker amounts to manufacture on which Excise duty is leviable, as mentioned above, the process would be exempt from the levy of Service Tax.

If the process is not covered (as above), it has to be evaluated if the process is covered under clause 30 of the Mega Exemption Notification (Notification No. 25/2012-Service Tax dated 20th June 2012). The clause is reproduced below, for your reference:

"30. Carrying out an intermediate production process as job work in relation to -

agriculture, printing or textile processing;
cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act,1985 (5 of 1986);
any goods on which appropriate duty is payable by the principal manufacturer; or
processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;"

If the job work process is covered by the above clause, then the same is exempt. If not, the process shall be liable to Service Tax.

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Smart_Ideas (Growing Businesses ) (6 Points)
Replied 07 May 2017

What is the scenario if we were to take a contract manufacturing of Fashion Clothes from a brand, lets say a Retail company gives us fabric ans asked us to manufacture shirts for them.

Also what would be the scenario if we were to further sub contract it to another manufacturing facility ( factory) to so the same job.