Statutory Obligations

[Pradeep Jain]

Dear Sir,

Good morning,

Our company willing to outsource one of its operations (heat treatment) on our component within the plant. To perform this activity, Building will be provided free of cost. In addition to that some consumable, such as power, water etc., will be provided on chargeable basis. Some of consumable will be purchased by them directly from the market.

Now our query is that:-

1. What will be flow of document for movement of material before and after heat treatment ?
2. Is there is any Excise Duty and Service Tax liability on the said entity who is carrying this activity at the time of sending the goods after heat treatment; although Excise duty is payable by our company on the final product where in heat treated components to be consumed ?
3. In case of receipt of consumable directly by the said person , may mention our address for delivery of consumable for heat treatment;
4. What will be other statutory obligation; any intimation or registration to other state Govt. department?
5. With best regards
6. Pradeep Jain

[Rajagopalan Ranganathan]

Sir,

You have stated that you are willing to outsource the operations of heat treating of your components to a job worker who will do this operation within your premises. Further you are providing free of cost the space for carrying out the job work. You are charging for supply of water and electricity. These will be included by the job worker in job charges charged by the him.

Since transferring of components for heat treatment and components after treatment are moving within your premises this can be done on the basis of internal memos/challans issued by you in triplicate. The job worker will enter the quantity supplied back in the original copy of the internal memo/challan and retuned the original copy to you along the job worked goods. You may maintain a simple account to monitor the movement of the components.

Since you are paying excised duty on the final product in the manufacture of which the job worked goods are utilized the job worker need not pay any service tax vide Sl. No. 30 of Notification NO. 25/2012-ST dated 20.6.2012 (with effect from 1.7.2012) as amended which states that “carrying out an intermediate production process as job work in relation to any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer.

The components supplied by are subjected to the process of heat treatment within your premises and the same amounts to manufacture under Section 2 (f) of Central Excise Act, 1944. Therefore it is exempted under Notification No. 67/95-CE dated 16.3.95 as captive consumption. Therefore you need not pay any excise duty on the heat treated components.

You just give an intimation to your Range officer regarding this so as to avoid any allegation involving suppression of fact, intention to evade duty etc.

[Ganeshan Kalyani]

Sir, the detailed and in-depth reply enriched my knowledge. Thanks.

[KASTURI SETHI]

Really relished the reply of Sh.Rajagopalan Ranganathan, Sir.

AI Summary

Job work exemption for in house heat treatment avoids service tax and treats in house manufacture as excise exempt captive consumption. Outsourcing heat treatment within the principal's premises is job work; internal memos/challans should document movements, consumables charged by the principal are part of job charges, and the job worker is not liable to service tax under the job-work exemption. Heat treatment performed in-house constitutes manufacture but, when consumed in the principal's final product, is treated as captive consumption and exempt from excise. The principal should intimate the Range Officer and maintain simple accounts to monitor movements.