Galvanising on Iron and steel article under job worker challan

[Moksh Ari]

Hi

We are receiving Iron and steel article for galvanizing purpose under job worker challan, we are using Zinc procured by us and melting in iron kettle manufactured in our factory.

Excise and service tax registration are also obtained since involved in manufacturing of galvanized plant and kettle for heating Zinc.

Here following aspects are involved:

a) Galvanizing iron and steel received under job worker challan in our factory using Zinc for coating.

b) after the above process the galvanized iron and steel is cleared by issue of invoice charging excise duty on the above process.

c) we also charge service tax on labour charges for the above activity.

My question is:

1. does the above process is correct under excise and service tax laws.

2. the valuation for excise and service tax purpose is 80% excise and 20% Service tax since we use only zinc procured by us and labour charges for the galvanizing process OR shall the value of materials received under job worker basis shall also be considered for excise duty calculation.

3. can we avail cenvat credit for zinc.

3. will VAT be applicable on the said activity.

Please share your expert opinion on the above and guide accordingly

Thanks and Regards

Moksh

[Rajagopalan Ranganathan]

Sir,

As per Chapter note 4 of Chapter 73 of first schedule of Central Excise Tariff Act, 1985 (1 of 1986) "galvanization" of iron and steel products falling under Chapter 73 amount to "manufacture". Therefore you need not pay service tax on charges collected by you for job work since any process amounts to manufacture under Central Excise Act, 1944 is not service as per Section 66 D of Finance Act, 1994 and charges collected by you for carrying out such job will get automatically included in the transaction value of your product.

Transaction value of your products includes cost of raw materials, job charges and your profit.

Since you are paying duty on the galvanized products you can avail the credit of CENVAT duty paid on zinc.

As far as VAT is concerned, you may obtain suitable advice from an expert in Vat Laws since I do not have experience in VAT Laws. .

[Mahir S]

Yes, Galvanization do amount to manufacture as rightly explained above in detail and you are therefore required to pay central excise duty thereon.

In your case, you are also required to pay excise duty with interest on the transaction value for the 20 % aspect which are presently covered under service tax.

No need for service tax registration in respect of Kettle for heating zinc.

[Moksh Ari]

Dear All

Thanks for your prompt response on my query.

Query for Calculation of transaction value

For charging excise duty we are only considering cost of Zinc , since iron and steel is provided by Principal manufacturer , our unit is just doing the galvanizing activity for which we purchase Zinc.

Example for Calculating Transaction value : 200kgs of MS Angles ( Iron and Steel) received under 4(5) Challan for galvanizing, we use 275 kgs of Zinc for this activity. cost of zinc purchased (assumed) ₹ 55000/- and excise duty paid ( input credit ) is ₹ 6798/-. Labour charges for said process is ₹ 26730, total cost Rs (55000 + 26730 )= ₹ 81,730.00

Now when we clear Galvanized MS Angle, what will be the transaction value for excise duty purpose.

a) Cost of Zinc + Labour Charges + Profit Margin OR

b) Cost of MS Angles ( Iron and Steel)+ Cost of Zinc + Labour Charges + Profit Margin

Please share your expert opinion on the above and guide accordingly

Thanks and Regards

Moksh

[Mahir S]

If the Principal Manufacturer is supplying the raw materials i.e. Iron and Steel free of cost under cover of challans and such goods are then returned back after job work process such as galvanization etc, then in such cases :--

(i) there is no need for payment of excise duty,

(ii) there is no need for reversal of cenvat credit for inputs such as zinc etc used in galvanization process,

(iii) there is no need for any service tax registration and not required to pay any service tax thereon.

Just maintain Annexure - V register for receipt and clearance of job work goods and raise invoice for labour/conversion charges, without any excise/service tax payment.

Above submission is based on the fact that the Principal Manufacturer shall be paying excise duty on the job worked good when finally cleared from their factory premises and prior permission/intimation is sought under noti. no. 214/86 CE.

The scenario shall be different if excise duty is not paid by the Principal Manufacturer, when finished goods are finally cleared from their factory premises.

AI Summary

Galvanisation as manufacture: job-work charges form transaction value and attract excise duty, not service tax. Galvanisation of iron and steel is treated as manufacture for central excise; job-work charges must be included in the transaction value and attract excise duty, not service tax. Transaction value includes inputs consumed (zinc), job charges and profit. CENVAT credit on zinc used in galvanising can be availed. If the principal supplies raw material under job-work challans and pays excise on final clearance (with required notifications), the job-worker need not pay excise or reverse credit and need not charge service tax, subject to maintaining Annexure V; different rules apply if the principal does not discharge excise.