Service tax on job work to job work

[Gangadhar Haldikar]

As per entry 30 of 25/2012, 'Carrying out an intermediate production process as job work in relation to any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer.' is exempt.

Suppose the principal manufacturer gives job work to job worker A, who in turn, gives it to job worker 'B'. Now service in the hands of first level job worker is undoubtedly exempted. But is the service exempted in the hands of second level job worker 'B' also? Because it is in relation to goods on which duty is payable by principal manufacturer, though the PM is not the direct customer of the second level job worked. The entry does not require it either.

Plain reading of the entry suggests that exemption should be available.

Views please.

[KASTURI SETHI]

Dear Querist,

What is the period involved ?

[Gangadhar Haldikar]

FY 2015-16

[Shilpi Jain]

Reading the above entry it is not forthcoming that the exemption is applicable only to the first level job worker.

[Shilpi Jain]

When was the SCN issued? Is it not time barred?

[Gangadhar Haldikar]

The SCN was issued within extended period of time but beyond normal period. We are challenging the extended period, but on merit, we believe that the exemption is available to the second level job worker. Because the exemption is not based on the customer but the goods, as it appears from the entry.

[KASTURI SETHI]

Sh. Gangadhar Haldikar Ji,

What activity or process was carried out by the job-workers 'A' and 'B' both? Pl. mention all activities/processes

This information is very important. 

[Gangadhar Haldikar]

It is fettling of castings. A process not amounting to manufacturing. The principal manufacturer manufactured castings and duty was payable on it. 

[KASTURI SETHI]

(i) Appropriate duty is payable only if the process amounts to manufacture. On this very basis exemption to job worker was granted vide Notification No. 25/12-ST dated 20.06.12 as amended.

(ii) Central Excise duty and Service Tax both cannot be charged simultaneously on the same activity or process. Either CE duty is leviable or Service Tax is leviable. If CE duty has been paid, exemption from Service Tax is available to the job-worker otherwise not.

FIRST SCENARIO (IF THE PROCESS AMOUNTS TO MANUFACTURE)

(i) If any activity or process amounts to manufacture, Central Excise duty is leviable/payable and exemption to job worker from Central Excise duty is available only if CE duty has been paid on the final product by the principal manufacturer. A job worker works for and on behalf of the principal manufacturer. The principal manufacturer is responsible for discharging Central Excise duty liability. The whole liability is cast upon the principal manufacturer.

(ii) If any process carried out by the job worker amounts to manufacture, the cost of job-worked goods is to be included in the cost of the manufacture of the final product for the purpose of payment of Central Excise duty. Here the cost of job-work carried out by both job workers (A & B) will be included in the cost of the manufacture of the final product for the purpose of payment of duty.. Since the whole Central Excise duty stands paid/payable by the principal manufacturer, so exemption from CE duty is admissible to both job workers (A & B) due to inclusion of the cost of job work in the cost of manufacture of the final product.

(iii) in view of the duty payable/paid by the principal manufacturer, exemption from CE duty is admissible to both job-workers and NOT from Service Tax.

SECOND SCENARIO (IF THE PROCESS DOES NOT AMOUNT TO MANUFACTURE)

(i) If any process does not amount to manufacture, Service Tax is leviable/payable on the activity/process, if otherwise not exempted from ST specifically. The querist at serial no. 7 above has informed that the fettling of castings does not amount to manufacture

(ii) In the instant case, the activity or process does not amount to manufacture, so Service Tax is leviable/payable on the process or activity carried out by both job workers.

(iii) Since the querist's activity or process falls in the Second scenario, ST is leviable. B will charge Service Tax from A and A will charge Service Tax from principal manufacturer. Notification No. 25/12-ST dated 20.6.12 as amended is not applicable to both job workers inasmuch as their activity or process does not amount to manufacture.

[Amit Agrawal]

I most respectfully disagree with Shri Kasturi Sethi Ji for his views about applicability of service tax in both the scenarios discussed by him in his post No. 8 above. 

My views are as follows:

A. Before 31.03.2017, no service tax was leviable upon " services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption'' in terms of Section 66D (f) read with Section 66B of the Finance Act, 1994 (32 of 1994).

B. Similarly, before 31.03.2017, "Carrying out an intermediate production process as job work in relation to any goods excluding alcoholic liquors for human consumption,] on which appropriate duty is payable by the principal manufacturer" was exempted from service tax as per then prevalent Serial No. 30 (c) of Mega Exemption Notification.

C. Similarly, since 31.03.2017 till 30.06.2017, "Services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption' was exempted from service tax as per then prevalent Serial No. 30 (i) of Mega Exemption Notification.

Accordingly, before 31.03.2017, NO service tax was payable on services provided by the job-worker irrespective of the fact that subject job-work process amounted to manufacture or not, in my view.And period under dispute here is FY 2015-16 as per post No. 2 above.

D. Since 31.03.2017 till 30.06.2017, "services by way of carrying out any intermediate production process as job work not amounting to manufacture or production in relation to agriculture, printing or textile processing" was exempted (Serial No. 30 (ii) (a) of Mega exemption notification after being substituted vide vide Not. 7/2017 - Dated 2-2-2017, with effect from the date on which the Finance Bill, 2017 receives assent of the President i.e. 31.03.2017).

E. Since 31.03.2017 till 30.06.2017, "services by way of carrying out any intermediate production process as job work not amounting to manufacture or production OTHER THAN in relation to agriculture, printing or textile processing" was taxable. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

AI Summary

Service tax exemption on job work may extend to sub-job workers when exemption tied to goods' duty status. Dispute whether the Mega Exemption for 'intermediate production process as job work in relation to any goods on which appropriate duty is payable by the principal manufacturer' covers second level job workers. One practitioner argues that if the process amounts to manufacture, Central Excise duty paid by the principal brings both job workers within excise treatment (not service tax); if it does not amount to manufacture, Service Tax is leviable on each job worker. Another practitioner contends that for the disputed period job work services were exempt from service tax irrespective of the manufacture test.