Service tax on sub Job work

[Murari Agrawal]

Dear Experts,

We are receiving inputs for Job work under rule 4(5) (a). Some times due to capacity hindrance, we get the job done from a sub job worker.

we have been advised in this Forum that since there is nothing in the rules for such activity, we may carry on.

We shall be paying job charges to the sub job worker less than what we get from our principal.

Our query is  whether Service tax will be payable and if yes whether on full job charges received or after reducing job charges paid to the sub job worker.

[R MUTHURAJ]

Dear Mr.Murari Agrawal,

As per the Notification No.12/2012-Service Tax dated 17^th March 2012 the sl no 30 deals as under which is reproduced below for your ready 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;

the sl no 3 says any goods on which jobwork is being carried out on which Service tax is not applicable provided the ED has to be paid by the Principal Manufacturer.

In my opinion, the Job work includes Sub-Job work also and therefore, Service Tax will not attracts.

[Murari Agrawal]

Dear Mr Muthuraj,

The activity of sub job worker may be covered, but what about the job worker who is receiving job charges but not manufacturing any goods on which appropriate duty is payable by the principal manufacturer ? The job worker is not sending goods to sub job worker for completing a part of the process, but the inputs recd by him are sent as such to the sub job worker without any processing. Kindly advise.

 

[RAMDAS IYER]

dear MurariAgrawal,

1. the liability to pay service tax rests on each service provider independently. hence, the sub contractor, or the sub-job worker is indepedently liable to pay service tax on the services provided by him to the main contractor. the main contractor, in turn, can take cenvat credit  on the tax paid by him to the sub-contractor.

2. CESTAT-DELHI, in 2011, has decided so in BHEL case, where BHEL took a contract and got part of it done from a sub contractor. the sub contractor did not register and pay tax on the service invoices raised by him on BHEL and came to grief with a huge liability including int and penalty, when the CESTAT decision went against him. here BHEL gave a certificate that they have paid service tax on the full value of the contract. this did not help the sub-contractor (SEW CONSTRUCTION LTD. Versus COMMISSIONER OF C. EX., RAIPUR) (2010 (11) TMI 469 - CESTAT, NEW DELHI )

3. in another case in  2011, a larger Bench of the same Tribunal gave an identical decision

regards,

Ramdas.S.Iyer

chennai

Director,

Chidambaram Shipcare Pvt Ltd

 

[Murari Agrawal]

Dear Mr Ramdas.S.Iyer,

My query is different. Since the sub job-worker is manufacturing goods on which appropriate duty is payable by the principal manufacturer, he will not be liable for service tax. But the job worker is not manufacturing - getting job charges and getting the job manufactured from the sub job-worker. I would like to know the position of the job worker as regards service tax.

[RAMDAS IYER]

dear Murari Agrawal,

thanks for your propmpt feedback, i  got your point

the "sub job worker" is the manufacturer and so he will  be liable to pay CED on the "transaction value" of the principal manufacturer.

the "job worker",  a go-between in this, is not a manufacturer, but the activity he does, vis-a vis the principal manufacturer, is a service and he will be liable to pay service tax on the consideration he gets from the principal manufacturer

 it may look paradoxical that , while the whole value, namely, the transaction value of the principal  manufacturer has suffered CED, a part of it, namely, the consideration recd by the "job worker" for acting as a "pass through" in the whole transaction, becomes excigible to service tax as well. but, in tax laws, there is often no equity.

let us see if any of our valued co-subsrcibers has anything different to say

 

regards,

Ramdas.S.Iyer

 

AI Summary

Debate Over Service Tax on Job Work: Full Charges vs. Deductions for Sub-Job Workers Underlines Complexity of Dual Taxation A discussion on service tax applicability for job work involving sub-job workers highlights differing opinions. The main concern is whether service tax should be paid on the full job charges received or after deducting payments to sub-job workers. One expert suggests that sub-job work is exempt from service tax if the principal manufacturer pays the appropriate duty. Another expert argues that each service provider, including sub-job workers, is independently liable for service tax, referencing a legal precedent. The discussion underscores the complexity and potential for dual taxation in such arrangements, with no definitive consensus reached.