Service tax on job work within manufacturer's premises

[Guest]

Dear Experts,

My query is that if an individual has taken some job work in the same premises as of manufacturer for stitching the footwear components provided by the manufacturer, is the job worker liable for service tax.

Here manufacturer is in excise free zone in Himachal Pradesh and excise duty is exempted on final product till 2020.

Also, job worker is using his own labour and managing it but using machines and equipment of manufacturer's.

Pls, confirm. Thanks.

[KASTURI SETHI]

No manpower supplied. No RCM. Service Tax is applicable. Contractor is liable to collect and deposit ST under Section. 68 (1) of the Finance Act.

[Himansu Sekhar]

Mere stitching does not bring any change in the characteristics of the products I.e the process does not amount to manufacture. Then Stax is leviable

[KASTURI SETHI]

Dear Querist,. Are you charging any amount for usage of your machinery and equipments directly or indirectly ? If so, leviability of ST has to be examined. This secondary issue is very important.

[KASTURI SETHI]

Himachal Pradesh is Central Excise free area and NOT Service Tax free area.

[Guest]

Thanks for the replies.

Mr.Sha, job worker get cut components almost in raw form as cut piece of leathers, after assembling and stitching it start looking like a shoe but just without sole. This process is manufacturing, as around 60 % of the manufacturing is involve in this process.

Mr. Sethi, Job​ worker is not charging any rent as machines and all other equipments are provided by the manufacturer in his premises. Job worker is only getting piece rate for the work done, he pays salaries to his employees from the payments received.

If there is ST liability, than pls clear if this has to be paid by the job worker or by the principal manufacturer? as job worker has never charged ST in his bill from last 2 years.

Thanks.

[Himansu Sekhar]

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I reiterate, the process does not seem to be a manufacturing process. Stax liability arises. Jumbo rolls are cut into pieces to make desired sizes. It is held that such processes are not manufacturing process.

[Himansu Sekhar]

Even if you have not collected any tax, , still the tax liability is upon you.

[KASTURI SETHI]

Any process amount to manufacture is exempted from Service Tax only if Central Excise duty is leviable under Section 3 of Central Excise Act as per Notification no. 25/12- ST as amended vide Notification no.7/17-ST effective from 31.3.17.

AI Summary

Service tax liability: job work stitching within manufacturer premises is taxable and payable by the job worker. Mere stitching/assembly that does not amount to manufacture is a taxable service; the job worker is the taxable person and must collect and deposit service tax. Using the manufacturer's machines or locating the work in an excise-free area does not exempt the service. Exemption from service tax arises only if the process is a manufacture subject to central excise duty and the applicable service-tax exemption notification covers it.