Job work & Service Tax

[Srivatsan Krishnamachari]

Dear Experts,

I need clarification on one issue. X company is doing job work for Y company, where Y company is paying excise duty on the total material value. Where as X company is not paying any service tax on the job work done. Since Y company is paying excise duty on the total value of the material, is it essential to pay service tax by X company?

Kindly clarify

Srinivas

[KASTURI SETHI]

Sir, No ST is to be paid as CE duty stands paid.

[Ganeshan Kalyani]

Sir, You are paying Excise Duty it means the activity carried out by company X is a manufacturing activity and thus service tax is not applicable. Either service tax or excise duty is leviable depend upon the nature of activity/ process carried out by Job worker. Thanks.

[Rajagopalan Ranganathan]

Sir,

Situation: -I

If the process undertaken by the job worker, namely company X amounts to manufacture under Section 2 (f) of Central Excise Act, 1944, then X has to pay duty on the product manufactured by him. The duty amount paid by X can be taken as credit by Y company and an utilize the same for payment of duty on the final product manufactured by Y. If Y company avails Notification No. 214/86-CE dated 25.3.1986, then Y company can take the credit of duty paid on the raw materials which is transfered to the job worker for further processing and Y company can get back the processed raw material without payment of duty from X. For this purpose Y company has to follw the procedure mandated by Notification No. 214/86.

Situation: -II

If the process undertaken by X company as job worker does not amount to manufacture, then X company has to pay service tax on the gross value charged by X company. This service tax paid by X company can be availed as input service credit by Y company.

However, as per Sl. No. 30 (c) of Notification No. 25/2012-ST dated 20.6.2012 (with effect from 1.7.2012) as amended "carrying out an intermediate production process as job work (by X company) in relation to any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer (Y company).

[KASTURI SETHI]

Agree with Sh. Rajagopalan Ranganathan, Sir.

AI Summary

Job work tax treatment: excise or service tax depends on whether the process amounts to manufacture; otherwise service tax applies. If the job-work process amounts to manufacture under Central Excise law, excise duty is leviable on goods produced by the job worker and may be credited or managed under statutory job-work procedures; if the process does not amount to manufacture, the job worker must charge service tax on the gross value and the principal may claim input service credit, subject to notifications excluding intermediate job-work processes where appropriate duty is payable by the principal.