production work on piece rate

[Narendra Soni]

Dear Expert,

Can a manufacturer give production work on piece rate with in his own factory to contractors on job work under notification 214/86-ce-dtd.25.03.15 ( contractor will bring his labour only , all other are of manufacturer)

Suppose "X" is a manufacturer of fabric.

"X' desired to give production to contractors based on per kg. RM/Machines/place all are within factory of "X"and belongs to "X".Contractor will employe labour only to produce the good and receive payment on piece rate/per kg.

Regards.

[ashish chaudhary]

When the goods on which work performed are within factory only, it would be only labour contract. There would be no applicability of excise/ notification no. 214/86 as there is no removal (outwards and inwards) of goods from thee factory.

This could be on per unit basis/piece rate basis.

[Mahir S]

Kindly refer Para 02 of Notification No. 214/86-C.E., dated 25.3.1986 which is as under :-

(2) The exemption contained in this notification shall be applicable only to the said goods in respect of which, -

(i) the supplier of the raw materials or semi-finished goods gives an undertaking to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction over the factory of the job worker that the said goods shall be- .....

In view of above, it therefore appears that the goods have to be supplied to the factory of the job worker. Hence, in your case, since the goods are not being removed outside your factory premises for job work and also not been supplied to the factory of the job worker, therefore it shall not fall under the parameters of Noti. No. 214/86 CE as amended.

If the intention is to avoid payment of service tax for the Manpower Services rendered by the Labour contractor’s by showing them as the job work process; then it shall not be possible.

[YAGAY and SUN]

Dear Narendra Soni,

In our view, service tax would be applicable in this matter as such transaction is not falling under Job Work. Services would fall under the Category of supply of manpower.

Regards,

YAGAY and SUN

(Management, Business & Indirect Tax Consultants)

[Ganeshan Kalyani]

Yes service tax would be applicable under reverse charge. The condition as given in the notification is - service provider should be individual, HUF, firm, AOP, BOI and the recipient of service should be a body corporate. The status can be understood from PAN of the service provider.

AI Summary

Service tax liability: supply of manpower within manufacturer's premises treated as taxable, not job work.
When contractors perform production work entirely within the manufacturer's factory using the manufacturer's raw materials, machines and premises while supplying only labour, the arrangement is a labour contract and not covered by the job work exemption, which requires supply of goods to the job worker's premises. Such intra factory labour supply is taxable as provision of manpower/services and may attract service tax, including under reverse charge, rather than exemption as job work.