In house job-work by Export Company and service tax

[Ashok Chopra]

Respected Forum,

I am manufacturer-exporter of ready made garments. i am availing benefit of Duty Drawback. Stitching of garment is done in my company on contract basis. Contractor raise bill on me.

During service tax audit, officer is of opine that this service will fall under reverse charge mechanism and i am liable to pay service tax on contractor's bill.

Please guide me accordingly. Also please provide me copy of notification and case law to satisfy my management.

Thanks and regard

AI Summary

Reverse charge on manpower supply may apply to contract stitching unless activity is treated as manufacture or duty paid.
Dispute whether contract stitching for a garment manufacturer-exporter attracts service tax under reverse charge hinges on characterisation: if the contractor supplies manpower, reverse charge applies to the manufacturer; if stitching is an incidental process of manufacture under the Central Excise definition, it is not a taxable service. Additionally, where excise duty is paid on finished goods or goods are exported (treated as duty-paid), service tax liability against the manufacturer is negated; allocation of levy and registration between brand owner and job-worker follows specific excise instructions and notifications.