Service tax on job work

Hi Siddharth,

Please note that there a negative list under Section 66D of the Finance Act, 1994, which provides a number of services which would be outside the ambit of Service tax.

Further refer to the Section 66d(f) of the Act, as under –

“any process amounting to manufacture or production of goods;”

Thus, if the activity amounts to manufacture, then the said activity would not be liable to Service tax.

Further, if the activity does not amount to manufacture, still there is an exemption provided to the activity, wherein it is provided that if the excise duty is being paid by the principal manufacturer on the final product, then the said services of a job worker would not be liable to Service tax.

However, if none of the aforesaid conditions are satisfied, then the services of such job worker should be liable to Service tax.

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 -

1. agriculture, printing or textile processing;
2. 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);
3. any goods on which appropriate duty is payable by the principal manufacturer; or
4. 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.