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Service Tax on Job Work.

paresh (Accountant) (58 Points)

29 December 2009

Dear All,

We are Manufacturer of Casting & we have exiceble unit. We have given labour contract to concern contractor. We want to know is it servie tax applicable on labour contractor invoice? If yes please provide us notification no.

Awaiting your favorable feedback.

Thanks & Regards,

Paresh Shah.

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7 Replies

CA Anand Oberoi (Chartered Accountant) (296 Points)
Replied 29 December 2009

if the godds and raw marerials is supplied by the client to job work contractor for production or processing on such materials, then such type of job work is exempt from service tax (notification number 8/2005, dated 1-3-2005 as amended by notification no 19/2005, dated 7-6-2005)

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CA Anand Oberoi (Chartered Accountant) (296 Points)
Replied 29 December 2009

but this exemption is available only if such client uses such goods in or in relation to production of goods which falls under the First Schedule of Central Excise Tarrif Act, 1985 on which appropriate rate of excise duty is chargeable.

in any other case (i.e. own raw materials used by job work contractor or produced goods are not chargeable to excfise duty), 30% of the bill amont of job work is liable for service tax and 70% amount of bill of job work is liable for VAT

paresh (Accountant) (58 Points)
Replied 31 December 2009

Dear Mr. Anand,

Thanks for your valuable repaly, But I want to clearfiy about out jow worker, We have given Labour contract and contractor have provide Only labour in our factory, All the eqipment and material are provided by company. So in this case Service tax exampted under notification no. 8/2005 dated 1.3.2005.

Thanks again,

CA Anand Oberoi (Chartered Accountant) (296 Points)
Replied 31 December 2009

you are most welcome...!! and happy new year to you...!! :)

Madhukar N Hiregange (Chartered Accountant) (38934 Points)
Replied 01 January 2010

The entry in BAS talks of production or processing of goods for or on behalf of another. In your case the contractor seems to be only doing that. I understand that he is repsonsible for the production and not just supplying labour who are under your control.

If only labour supplier then liable under manpoower supply.

If responsible for the process then whether there is any manufacture ( conversion + deemed manufacture ) as per sec 2 (f) of the CEA is tobe confirmed. If there is conversion ( A converted to B) in my view there would be no liability under ST as the defintion exclude processes amounting tomanufacture.

HARI PRASAD SINGH (COMMERCIAL MANAGER) (78 Points)
Replied 14 May 2011

Notification New Delhi, dated 1st March, 2005.
No. 8/2005-Service Tax 10 Phalguna, 1926 (Saka)
G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of
the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central
Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts
the taxable service of production of goods on behalf of the client referred in sub-clause (v) of
clause (19) of section 65 of the said Finance Act, from the whole of service tax leviable thereon
under section 66 of the said Finance Act:
Provided that the said exemption shall apply only in cases where such goods are
produced using raw materials or semi-finished goods supplied by the client and goods so
produced are returned back to the said client for use in or in relation to manufacture of any other
goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as
amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), on which appropriate
duty of excise is payable.
Expalantion.- For the purposes of this notification,-
(i) 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 (1 of 1944);
(ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of excise
wholly exempt.
[F. No. 334/1/2005-TRU]
(V. Sivasubramanian)
Deputy Secretary to the Government of I

CA Unnikrishnan Nair N (Chartered Accountant) (2083 Points)
Replied 16 May 2011

If the labor contractor only supplies man power and the factory owner controls and supervises them , it is taxable under manpower supply. If labor contractor controls and supervises the manpower who is responsible for production, quality etc. , it is taxable under BAS. Eligiblity for exemption under Noti.No.8/2005 may be questioned by department on two grounds . One, manufacture involves men, machinery and factory while labor contractor provides only men. Two, possession of raw materials is still with the factory owner because the raw materials are not taken outside the factory.