Applicability of service tax on labour - bifurcation between labour and material used

[sunil mehta]

A proprietory firm receives jobwork for manufacture of a product falling under ecise tariff.Main material is supplied by ltd.co.Other small materials are purchased by service provider.Upon manufacture of finished product,two invoices are to be raised:1)one for job charges & 2)second bill for sale of 'other small materials purchased and incld.in manf. of finished product.The ltd.co. has offered price for jobwork(incld.cost of small materials used by service provider). Query:1)How prop.firm will bifurcate between 'other materials used & labour)? 2)Whether this jobwork will attract S.T.even though service provider uses labour & partly uses his own material for mfg.of final product? 3)If above work is fully divided among 2 subcontractors (prop.firm only purchases small materials for mfg.of product)whether subletting of jobwork will attract S.T ,if prop.firm pays full S.T. on jobwork price? s.mehta

AI Summary

Service Tax Implications for Jobwork: Understanding Labor vs. Material Costs and Subcontracting Under Notification No. 12/2003 A proprietory firm engaged in jobwork for a limited company queries about service tax implications when bifurcating costs between labor and materials used. The firm raises two invoices: one for job charges and another for small materials purchased. Concerns include whether the jobwork attracts service tax and the impact of subcontracting. Responses highlight that if the process qualifies as manufacturing, service tax may not apply, but VAT/CST might, depending on material transfer. The firm can use standard labor deductions and notification no. 12/2003 to deduct material costs from charges, and subcontracting without adding materials avoids service tax implications.