Service Tax Liability for Lime Industry.

[Punit Maheshwari]

Respected Colleagues,

We are in Lime minerals business. We purchase limestone, calcine it, process it and make certain chemicals from it. Ours is labor intensive industry. We have given the responsibility of daily production to a contractor. He brings his own labor, which work on our machines and manufacture final products. We pay the contractor on piece rate basis, eg - 500 Rs for one ton of lime produced. We calculate the work done by the contractor and make payment to him accordingly. We are not concerned with the number of labor he employees to get the job done. He may bring 50 labor or 100 labor for the job, it is his look out. We are just concerned with the actual output and calculate our liability accordingly.

My query is, wether this system would come under the scope of Supply of manpower service and attract Service tax on RCM, or it can be classified as Job Work or Business Auxillary Service or any other head ?

[KASTURI SETHI]

Dear Querist,

This nature of service does not fall under the category of "Manpower Supply or Recruitment Agency". It is covered under erstwhile BAS (Now under the category of "Other Than Negative List". No RCM is applicable. 100% ST liability on the Contractor. Labour is under the supervision and control of Contractor and not under your firm.So no manpower has been supplied.

Also examine manufacturing aspect. Whether any of the processes carried out by you amounts to manufacture under Section 2 (f) of Central Excise Act, 1944 ? Both C. Excise duty and Service Tax cannot be charged.

 

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Kasthuri

[Himansu Sekhar]

Please elaborate about the nature of chemicals produced by you. Whether the duty liability arises or not

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir in toto.

[Punit Maheshwari]

Respected Sirs,

Thank you for your answer.

Himansu Sir, the chemicals that we manufacture are calcium oxide and calcium hydroxide. It attracts NIL rate of duty under Excise.

[Himansu Sekhar]

As per 66(D) of the Finance Act,1994, the negative list includes:

(f) services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption;

If the above process cited by you fits the above provisions of law, no s.tax liability arises

[KASTURI SETHI]

No pl. There has been change in Budget Feb., 17. This change is effective from the date of enactment. In this case no exemption from ST. ST is applicable.

[Himansu Sekhar]

Sir,

As per notf.no 7/17-st dated 2.2.17 ,it is put under exemption notf. 25/12-st (entry no 30). With due regard to the opinion, It appears the manufacturing processes are kept out of s.tax provisions.

[Ganeshan Kalyani]

The service is not a manpower supply service. It is a service of processor. And in processing job, service tax is applicable if the process does not amounts to manufacture. If it does then no service tax. But excise duty applicability may arise.

[KASTURI SETHI]

Sh.Himansu Sha Ji,

For enrichment of my knowledge (really in a sportsman spirit), I seek your views on the issue as discussed below:-

Section 66 D(f) has been deleted w.e.f. 31.3.2017 and simultaneously amendment has made in Entry No. 30 of Notification No.25/12-ST vide Notification No. 7/201ST effective from 31.3.17 as also pointed by you.

“30. Services by way of carrying out,-

(i) any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption; or

“(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;”.

Both these changes are vide Notification No.7/17-ST dated 2.2.17 (effective from 31.3.2017)

The questions arise in my mind are as under:-

(i) What is the purpose of deleting the entry from Negative List and inserting the same in Mega Exemption Notification ?

(ii) Can we read both insertions in isolation ?

(iii) Why should we not read both amendments/ insertions in conjunction ?

(iv) Why the definition of (Process amounting to manufacture --- - - - - ) has been added/inserted in the same Notification No.7/17-ST dated 2.2.17 ?

(v) Can we not give the 'colour' of GST to both changes ? ( I think in GST Govt. is very strict and proactive regarding job-work as this facility has led to misuse by the assessees earlier.)

I also seek the opinion of all experts on above points.

Thanks & regards.

K.L.SETHI

 

[Himansu Sekhar]

It is not clear about the intention of the legislature. It may be due to the ground that changing an Act is not possible frequently for bringing out any manufacturing activities into the tax net. Further what you opine may be correct as Gst has nu manufacturing concept. But I am not clear about it.

[KASTURI SETHI]

O.K. Sh.Himansu Sha, Ji. However, I am waiting for opinions of other experts eagerly.

[Punit Maheshwari]

Our products are covered under heading 2522. Rate of duty is 'NIL'.

now as per “(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;”.

Excise is leviable but at "NIL" rate. And as per supreme court decision in Wallace Flour Mills Vs. CCE [(1989) 44-ELT-598 (SC)] = 1989 (9) TMI 106 - SUPREME COURT OF INDIA and Vazir Sultan Tobacco Vs. CCE [(1996) 82-ELT-260 (Tri-Del),=  1995 (12) TMI 120 - CEGAT, NEW DELHI it was laid that nil rate of duty is also a rate of duty. And in Associated Cement Co. Ltd Vs. Commissioner of Customs [(2001) 128-ELT-21 (SC)] = 2001 (1) TMI 248 - Supreme court of India has reiterated that “if by virtue of an exemption notification the rate of duty was reduced to nil, the goods specified in the Tariff Act would still be regarded as excisable goods on which nil rate of duty was payable”.

So does it mean that service tax is also not applicable on our process ?