Job-work clearances are not exempted services when duty is borne by the principal manufacturer under the settled Cenvat scheme.

Job-work activity for principal manufacturers is not an exempted service merely because the job worker does not pay duty or service tax at its own stage. The applicable definition of exempted services covers only services exempt from the whole of service tax or services on which no tax is leviable, and the record did not show proper examination of the activity against that definition. Where the duty burden is discharged by the principal manufacturer and the processed goods move under the job-work scheme, settled precedent recognises that Cenvat credit remains available to the job worker. On that footing, Rule 6 of the Cenvat Credit Rules, 2004 was held inapplicable to such clearances.

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Issues: Whether the job-work activity undertaken for principal manufacturers could be treated as an exempted service so as to attract Rule 6 of the Cenvat Credit Rules, 2004, and whether the demands raised on that basis were sustainable.

Analysis: The statutory definition of exempted services covers taxable services exempt from the whole of service tax and services on which no service tax is leviable under section 66 of the Finance Act, 1994. The record did not show any proper examination by the lower authorities of the nature of the appellant's job-work activity against that definition. The job-work charges received from principal manufacturers were shown to relate to goods returned under the job-work procedure, with the duty liability being borne by the principal manufacturers, and the appellant's position was not dislodged by the Revenue. The decision also relied on settled authority that a job worker is not barred from availing Cenvat credit merely because the processed goods are cleared without payment of duty in the hands of the job worker when the duty burden is discharged at the principal-manufacturer stage. The cited precedents consistently held that such job-work clearances do not become exempted final products or exempted services for the purpose of Rule 6.

Conclusion: The job-work activity was not liable to be treated as an exempted service for Rule 6 purposes, and the demands based on that premise were unsustainable in favour of the assessee.

Ratio Decidendi: Job-work clearances cannot be treated as exempted services or exempted final products merely because no tax or duty is paid by the job worker, where the statutory scheme and settled precedent show that the duty burden lies with the principal manufacturer and Cenvat credit remains available.

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