Service Tax on Job Work

[Guest]

My client manufacturing and suppling materials to the Specified Research Institutions ( who is under Ministry of Defense) under Notification 10/97-CE. In this regard before manufacturing of goods, my client sending certain materials for the job work. Shall we claim Service tax exemption for Job work charges, since its a conditional exemption. As per the 25/2012 Mega Exemption Notification under Sl 30(c), carrying out an intermediate production process as job work in relation to any goods on which appropriate duty (i.e., other than Nil rate of duty or duty wholly exempt)is payable by the principal manufacturer. The goods manufactured are liable to Central Excise duty under CETA, but my client getting EDEC from the customer. My client is contending the goods are actually liable under Excise duty, but are exempted due to EDEC from the customer. If client doesn't give EDEC, then whole goods liable for the excise duty.Hence its a conditionally exempted from the Central Excise duty and can't be termed as Nil rate of duty or duty which is wholly exempted. Further, Please refer the following case laws: M/s Shoba Developers Ltd Vs Commissioner of Central Excise, LTU, Bangalore and Orissa Synthetics Ltd Vs Collector of Central Excise (1995 (77) ELT 350 (tri) = 1994 (5) TMI 124 - CEGAT, CALCUTTA Please do the needful with your valuable opinion.

[Rajesh Nathoo]

Dear Mr. Narendra Kumar

As per Mega Exemption Notification , Service Tax on job work is exempted when process amounts to manufacture or job work is in relation to any goods on which appropriate duty is payable by the manufacturer and appropriate duty does not include Nil Rate of Duty or wholly exempt .

An exemption notification has to be construed very strictly . Your client is trying to enlarge the scope of exemption Notification .If we go by the reasoning of your client , does it mean that your client is paying appropriate duty .If your client is eligible for exemption under Central Excise Not. 10/97, (As per the Not. 10/97 products manufactured by your client are wholly exempted . It is an end used based exemption , Purpose of EDEC from the client is only to check whether end use of exemption has been proved by the manufacturer. By what logic does it mean that he is paying appropriate duty .

An exemption notification has to be construed very strictly .Intention of Legislature is to exempt job work under only two conditions -

1. When process amounts to manufacture because assessee may be liable to pay Central Excise Duty and to avoid double levy .

2. When principal manufacturer is paying excise duty because the matter is revenue neutral as principal manufacturer is eligible to take the Cenvat Credit .

Hence I opine that you are liable to pay Service Tax if your Principal Manufacturer is not paying Central Excise Duty

It feel it is also pertinent to mention that under Negative List Regime of Service Tax , onus has shifted on assessees their service is not taxable under law .

Hence I suggest that you should try to collect the service tax from your client to avoid disputes with the department . If your client does not satisfy the conditions of exemption Not. 10/97, and is liable to pay Central Excise Duty , he can very well take the Cenvat Credit on same .

[Radha Arun]

What is the nature of the work done by the job worker? That will determine whether service tax or excise duty will be payable.

[sreemannarayana B]

In case your client is registered with DSIR, then your client can provide you a certificate stating that, item being procured from you is used for research purpose and not a prototype. Therefore, after the manufacturing the goods, you can supply to your client under notification no 10/197 as amended by 16/2007. However, if your client places an order for job work on you( inputs supplied by your client) there is no use of EDEC as the notification number 10/97 does not apply for service activity.

Further, as per the Section 66D ( serial number 6 ) "Any process amounting to manufacture or production of goods" Service Tax is not applicable and there is no such condition that, your client is required to pay Excise duty. However, the process should fall under the definition of manufacture as per the Central Excise Act.

Regards

 

 

AI Summary

Service tax exemption for job work requires either manufacture or the principal paying excise duty, else tax applies. Job-work service charges are exempt only if the process amounts to manufacture or the principal manufacturer pays appropriate excise duty (not nil-rate or wholly exempt). An EDEC that renders the principal's goods exempt by end use does not equate to payment of appropriate duty; exemptions are strictly construed. If the principal does not pay excise, the job worker is liable for service tax and should seek to collect it from the client unless the process or documentation (e.g., DSIR certificate) clearly establishes exemption or manufacture.