Job Work done in house the Factory

[SNEHAL SHAH]

R/sir,

Can In house / Factory Job work possible . We are registered with Central Excise and we have purchase the Input material . Job worker done our finished product in the factory plant with use all our resources and issued us Job work charges invoices per Nos .

Above procedure correct or not ? can any Service tax liability in this procedure ?

Please guide us .

Thanks and Regards,

SNEHAL SHAH

[Rajagopalan Ranganathan]

Sir,

If the process undertaken by the job worker amount to manufacture then no service tax is payable. since he uses your raw material and other resources, he will be treated as hired labourer. In this case he will be treated as providing man power supply agency service and Service tax is to be paid by you on reverse charge mechanism on the gross value charged by the service provider. This is with effect from 01.04.2015 if the service provider is individual, HUF, proprietary firm, partnership firm (registered or not) or association of person and service receiver is registered as body corporate.

Prior to 01.04.2015, service receiver has to pay service tax on 75% of the gross value charged by the service provider and the service provider has to pay on 25% of the gross value charged by him/them.

However it is held by CESTAT in Future Focus Infotech v. CCE [2009 (15) S.T.R. 318 (Tri. - Chennai)] = 2008 (12) TMI 86 - CESTAT, CHENNAI that even if charge was on man-day or man-month basis it would not mean it is manpower supply service.

Please take all these points into consideration before arriving at a conclusion.

[BHUWAN BHATT]

Snehal,

manpower supply refers to amount claimed with reference to wages sheet only,

as we aware that no laborers are directly engaged by any establishment, companies are giving it as sub contract,

you refer your condition sheet is it is for manpower supply then service tax will be applicable

else department will refer this as business auxiliary service and they demand service tax from your sub contractor,

important aspect is that your contractor is routed through proper work order, and instead of manpower supply, piece rate contract will not attract service tax,

The value of work done by job worker inside the factory premises is ultimately attract addition of cost in finished goods and there excise duty will be discharged by the manufacturer,

however notification 25/2015 says that service tax is applicable where no excise duty paid on final product, in case you made supply to some exempted projects where ED is exempt by virtue of any notification then service tax issue will arise, so far there is no clarity on this.

AI Summary

Manpower supply service: reverse charge may apply where job worker uses principal's materials and resources, altering service tax liability. Whether in-house job work attracts service tax turns on substance: processes amounting to manufacture are not taxable services, while job workers who supply only labour using the principal's materials and resources may be treated as providing manpower supply, bringing the service tax liability onto the recipient under the reverse charge mechanism; contractual form (wage-sheet versus piece-rate) and excise treatment of the final product affect the tax outcome.