Service tax on job work for excise duty exempt unit

Our company is doing process [which is not amount to manufacture or production] on the material send by one excise exempt unit -[this unit is exmpt on place basis]. After processes, processes material alongwith scrap are sent back to the excise exempt unit.

For the processes, our company is charging jobwork charges and on that amount paying service tax.

My question is:

1. Whether service tax is leviable on such job work charges in view of the fact that our company's customer is an excise exempt unit on the basis of its location??

2. If our company is liable to pay service tax then can our compnay take cenvat credit of service tax on the labour charges hired for the processes [service tax has been paid under reverse charge].

Pl. make a due care for the followings:

PRESS RELEASE, DATED 20-6-2012

1. to 4.5 ........

4.6 Processes amounting to manufacture or production of goods

The phrase 'processes amounting to manufacture or production of goods' has been defined in section 65B of the Act as a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 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. This entry, therefore,covers manufacturing activity carried out on contract or job work basis, which does not involve transfer of title in goods, provided duties of excise are leviable on such processes under the Central Excise Act, 1944 or any of the State Acts.

4.6.1 Would service tax be leviable on processes which do not amount to manufacture or production of goods?

Yes. Service tax would be levied on processes, unless otherwise specified in the negative list, not amounting to manufacture or production of goods carried out by a person for another for consideration. Some of such services relating to processes not amounting to manufacture are exempt as specified in entry no. 30 of Exhibit A3.

4.6.2 Would service tax be leviable on processes on which Central ExciseDuty is leviable under the Central Excise Act, 1944 but are otherwise exempted?

No. If Central Excise duty is leviable on a particular process, as the same amounts to manufacture, then such process would be covered in the negative list even if there is a central excise duty exemption for such process. However if central excise duty is wrongly paid on a certain process, with or without an intended benefit, it will not save the process on this ground.

Exhibit A3 : Exemptions under Mega Notification.

A. The following taxable services have been exempt from the whole of the service tax leviable thereon under section 66B of the said Act vide mega exemption notification no. 25/2012 - ST dated 20/6/12 namely:-

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

a) agriculture, printing or textile processing;

(b) 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 TariffAct,1985(5of1986);

(c) any goods on which appropriate duty is payable by the principal manufacturer; or [In our case in my view - appropriate duty is payable by the principal manufacturer but location based excise duty is exempt].

Pl. clarify.

atul jain

As per Notification No. 25/2012-Service Tax

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 said Act) and in supersession of notification number 12/2012- Service Tax, dated the 17^th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210 (E), dated the 17^th March, 2012, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66B of the said Act, namely:-

Point No. 30. Carrying out an intermediate production process as job work in relation to -

(a) agriculture, printing or textile processing;

(b) 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);

(d) 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;

For the purpose of this notification, unless the context otherwise requires, – ( definations given below the notification )
Para 2(b) “appropriate duty” means duty payable on manufacture or production under a Central Act or a State Act, but shall not include ‘Nil’ rate of duty or duty wholly exempt.

Since your client who is a manufacturer claiming area based exemption in excise, then the job work services provided to him will become taxable since the para 2(b) of the notification 25/2012 ST define appropriate duty as duty payable on manufacture or production of goods but shall not apply to goods on which duty is NIL or duty Wholly exempt products.
So, since your client's products are fully exempt from excise duty under area based exemption, the job work service provider is liable to charge service tax to your client.