Service tax on job work within factory premises

[NAUSHERAWAN SM]

One of our contractors engaged in manufacturing of intermediate products where machines, materials, power, space and spares are provided by us within the factory premises on piece meal basis under job work. The contractor provide their own labour who remains under their own superintendence and control on receipt of a consideration on piece-meal basis. The job is purely excisable goods. We removes goods certain further processing like machining, painting, inspection etc. on payment of Central Excise duty. Let us know whether service tax is payable for such activities by the contractors/jobworker.

[KASTURI SETHI]

Relevant extract of An Education Guide issued by CBEC in 2012

4.6.2 Would service tax be leviable on processes on which Central Excise Duty is leviable under the Central Excise Act, 1944 but are otherwise exempted?

No. If Central Excise duty is leviable on a particular process, as the same amounts to manufacture, then such process would be covered in the negative list even if there is a central excise duty exemption for such process. However if central excise duty is wrongly paid on a certain process which does not amount to manufacture, with or without an intended benefit, it will not save the process on this ground.

If process amounts to manufacture on which duty of Central Excise is leviable under Section 3 of Central Excise Act, 1944 is covered under Section 66 D(f).

See also Notification No.7/17-ST dated 1.2.17 which is applicable from the date of enactment. (still not enacted). Relevant extract is here:-

2. In paragraph 2, after clause (y), the following clause shall be inserted with effect from the date on which the Finance Bill, 2017 receives assent of the President, namely: -

“(ya) “process amounting to manufacture or production of goods” means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944), or the Medicinal and Toilet Preparation (Excise Duties) Act, 1955(16 of 1955) or any process amounting to manufacture of opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force;”.

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir. If the process amounts to manufacture then service tax is not applicable. Otherwise yes.

[YAGAY and SUN]

Since intermediate goods are being used in the dutiable finished goods then there is no need to pay the service tax.

[Ganeshan Kalyani]

Whether the intermediate goods is used to manufacture dutiable goods or exempt goods the service tax is not applicable mere because the activity of manufacturing is in negative list of service.

[KASTURI SETHI]

Though the essence of all replies is same but style of expression is different. I support the views dated 21.2.17 of Sh.Ganeshan Kalyani, Sir. This reflects the difference between the terms, "Negative List" and "Exempted Services". From the date of enactment it will be shifted to the list of exempted services under Mega Exemption Notification No.25/12-ST as amended.

AI Summary

Process amounting to manufacture: service tax not leviable on job work when the activity constitutes manufacture.
Service tax is not leviable on job-work within factory premises when the contractor's activities amount to manufacture, because such processes are covered by the negative list even if central excise duty is exempted; processes that do not amount to manufacture remain subject to service tax. A proposed amendment would define "process amounting to manufacture or production of goods" and shift these items into the exempted services list under the Mega Exemption Notification.