Input service tax credit distribution to outsourced manufacturing unit

[Kadayam Ganapathy Subramanian]

Dear Experts,

As per amended Rule 7 of Cenvat Credit Rules, 2004, the input service distributor can distribute the service tax credit to the outsourced manufacturing unit and such unit has defined in the aforesaid rule to mean that a job-worker who is required to pay duty on the value determined under the provisions of rule 10A of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of section 4A of the Central Excise Act, 1944.

Since Section 4 is not mentioned in the second part of the above said definition, whether Input Service Distributor can distribute the service tax credit to the outsourced manufacturing unit who manufactures goods for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor where such goods are assessed duty under Section 4 of Central Excise Act, 1944.

Please offer your comments.

Regards,

K.G Subramanian

[Rajagopalan Ranganathan]

Sir,

As per Section 4A (1) of Central Excise Act, 1944 "the Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Legal Metrology Act, 2009 (1of 2010) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply. Therefore Section 4A is applicable to only those excisable goods which are covered under the provisions of the Legal Metrology Act, 2009 (1of 2010) or the rules made thereunder or under any other law for the time being in force, which are required to declare on the package thereof the retail sale price of such goods. Other excisable goods are valued under Section 4 of Central Excise Act, 1944.

Similarly rule 10A of Central Excise valuation Rules does not distinguish between excisable goods valued under Section 4 or 4A of Central Excise Act, 1944.

In my view omission of Section 4 in the second part of the definition may be due manual error and not intentional. Therefore you may take up the issue with CBEC sothat necessary amendments can be made to Rule 7 of Cenvat Credit Rules, 2004 at an early date.

[Suryanarayana Sathineni]

Dear Friend,

I am fully in agreement with the views expressed by Shri. Rajagopalan.

In my view, when the explanation 4 of Rule 7 of CCR,2004 states that the job worker who manufacture and pay duty under Rule 10 of Valuation Rules or

A person manufacturing goods using brand name of the principle manufacturer who pays the duty under Section 4A

indicates for both Section 4 and under Section 4A because under Rule 10 refers to Section 4 and hence in my view it not required to mention Section 4 in the explanation.

Best Regards

Suryanarayana

[Sulbha sharma]

Dear Experts,

 

Need to understand whether in the second part of the definition it is necessary that the manufacturer must be a Job worker or any manufacturer who manufactures the goods under brand name of Input service distributor and sell the final product to the Input Service distributor can also be covered as outsource manufacturing unit.

For Example -

ABC company have –

 

- Job worker BAC to whom Raw material is supplied by ABC ltd on stock transfer challan. Job worker manufacturer the goods and same has been cleared from his premises on payment of duty under section 4 followed by rule 10A.

 

- Job worker DEF to whom Raw material is supplied by ABC ltd on stock transfer challan. Job worker manufacturer the goods and same has been cleared from his premises on payment of duty under section 4 A

 

- XYZ Pvt. Ltd is a manufacturer to whom Raw Material is sold by ABC ltd and XYZ Pvt. Ltd manufacturer the final product under the brand name of ABC limited using the same raw material and sold it back to ABC limited after paying duty under Section 4A.

 

 

- SME Pvt. Ltd is a manufacturer to whom Raw Material is sold by ABC ltd and SME Pvt. Ltd manufacturer the final product under the brand name of ABC limited by using same Raw Material and sold it back to ABC limited after paying duty under section 4

 

-PBC Pvt. Limited is a another manufacturer who procures the Raw Material at his own and manufactures the goods the final product under the brand name of ABC limited and sold it to ABC limited after paying duty under rule 4A.

 

 

Need to understand which aforesaid scenario are covered as outsourcing unit for the purpose of Rule 7.

 

Regards

 

Sulbha

AI Summary

Input Service Distributor credit distribution may extend to outsourced manufacturers bearing brand name despite valuation reference omission Whether an Input Service Distributor may distribute service tax credit to an outsourced manufacturing unit despite the rule's omission of the general valuation provision is questioned. Commentators observe that the alternate valuation provision applies only to goods requiring declared retail sale price, that the cited valuation rule does not distinguish between valuation provisions, and that the omission is likely inadvertent; they conclude the cited valuation rule should be read to include manufacturers assessed under the general valuation provision. Practical scenarios are outlined to test whether job workers and various types of contract or independent manufacturers qualify as outsourced manufacturing units.