Liability and applicability of service tax

[LAXMIKANT ARORA]

My client recived a job work of fabricating garments . He receives all meterials from his client including evn small things necessary for fabrications . He has his own machines & his own tailors who are in his role . The client deducts TDS FROM THE RUNNING BILLS SUBMITTED BY MY CLIENT. Now The clientdo not give sevice tax as he sends the meterials on challan & get back garments through challan.. meterials used & surplus meterials are returned. My client uses the premises of his client . The garments do not attract Excise duty so neither my client nor his clients pays any excise duty or sale tax . Now my query is WEATHER MYCLIENT ANY WAY COME UNDER ANY SERVICE TAX CLAUSE OR HAS HE ANY LIABILTY FOR SERVICE TAX . HE IS NOT EVEN REGISTER WITH SERVICE TAX DEPT .

[Rajagopalan Ranganathan]

Sir,

Your client is engaged in the manufacture of ready made garments falling under Chapter 61 of first schedule of Central Excise Tariff Act, 1985.  According to Section 2 (d) of Central Excise Act, 1944 excisable goods means goods specified in the first schedule and second schedule to Central Excise Tariff Act, 1985 as being subject to duty of excise.  Therefore the process undertaken by your client amounts to manufacture and is liable to excise duty.

Section 66 D of Finance Act, 1994 (Negative list) process that results in 'manufacture' of goods is not 'service' and hence the same is not liable to service tax.

Since your client manufactures excisable goods on job work basis, he can avail the exemption granted by Notification No. 214/86-CE dated 25.3.86 as amended subject to the conditions specified therein.

In my opinion your client need not pay service tax. But please ensure the raw material supplier of you client pays duty on the finished goods returned by your client.

[SURESH ASTEKAR]

Notification No.30/2004-CE dated 09.07.2004 has provided unconditional total exemption to all goods falling under Chapters 61, 62 and 63 provided no cenvat credit is taken by the manufacturer.  Therefore, no Central Excise duty is liable to be paid and also no Service Tax is liable to be paid. 

16

61,62 and 63 (except Laminated Jute Bags falling under 6305, 6309 00 00 and 6310)

7[All goods.]]

AI Summary

Manufacture not a service: garment fabrication on job work excluded from service tax, subject to excise exemption conditions.
The contractor's fabricating activity using principal supplied materials and premises constitutes manufacture of ready made garments under Chapter 61 and thus is excluded from service tax under the negative list; applicable central excise notifications may exempt such goods where conditions (including non claim of cenvat credit) are met, so the job worker ordinarily has no service tax liability while excise treatment remains the material owner's responsibility.