Applicability of Service tax on Job Work - Liability of Sub - Contractors

[sunil mehta]

A ltd co gives order to a small contractor M/s XYZ for 'manufacture and supply of precast RCC Louvers and Fins ' (as per spceification given).The contractor (m/S xyz )does not manuacture and supply above precast RCC louvers and fins in normal routine day to day activity.It is only when such order is recd. they mfg. and supply. The raw materials are fully purchased by m/s XYZ. M/s xyz has to manufacture RCC louvers and fins in his own premises and transport it to ltd. company.M/s XYZ fully sublets the labour portion work to 3 small sub-contractors.- A ,B & C Query:- 1)whether M/s XYZ can be called contractors doing manufacturing (on job work basis ) or they can be called pure manufacturers and suppliers?(as they mfg. &supply precast louvers & fins) 2)Whether ser.tax applies on job work if product mfgd. is excisable and no cenvat challans are prepared when raw materials are issued by m/s XYZ to 3 sub contractors? 3)what happens if product mfgd. is not excisable and raw materials are issued by m/s XYZ to 3 sub contractors? 4)whether sub-contractors are liable to service tax -if final product is excisable and --if final product is not excisable?

[Rama Krishana]

It is established that where the activity is in the nature of manufacture, no service tax to be imposed but excise duty is required to be paid. Therefore, it is required to establish for each case taking into the nature of process involved and final product that whether it is merely a job working activity not involving manufacture or it is an activity of manufacture done by the job worker.

[Surender Gupta]

Yes, agree with Mr. Rama Krishana, it is the nature of facts and details of process which would help in determining the issue whether the activity is amount to manufacture or not. It said in your query the manufactring process is undertaken in the premises of contactor (job worker) and supplied to premises of buyer. The same would be subject to duty of excise. However the contract may avail the exemption upto 1.5 crorers. On the other hand, the job of labour contractors would be liable to service tax subject to small service provider exemptions.

AI Summary

Service tax on job work depends on whether the activity constitutes manufacture or remains a taxable service. Applicability of service tax to outsourced manufacturing hinges on whether the contractor's activities constitute manufacture or mere job work; if manufacture of an excisable product occurs in the contractor's premises and the contractor supplies the goods, excise duty applies rather than service tax, while labour-only subcontracting may attract service tax subject to small service provider exemptions and appropriate cenvat documentation.