Procedure for Job Work for a Trader

[SRIVATSAN RAJAN]

I import Steel Coils from China, give them to a factory to convert them into pipes. I hold only a "Dealer" registration under Central Excise. Since I am not a "Manufacturer" under Central Excise I can not avail the benefit of Notification 214/86. At present I sell the imported coils to the factory on High Seas Sales basis and purchase the finished steel tubes from them, which results in payment of VAT (4%) to them. Since I sell the tubes on CST basis, the rate is only 2%, I lose 2% on Sales tax. Further there is a hassle of  HSS Sale of coils, sales of pipes etc. Can anybody suggest an easier way to handle this matter. Can the factory take credit of CENVAT available on my Bill of Entry and use it against the CENVAT payable for my finished goods.

Deliver  steel coil to manufacturer  under challan prescribed under central excise rule and  opt payment of  excise duty at the end of  jobworker he may claim cenvat credti .  and he may deliver to you without payment of any kind of vat or cst as case may be. 

 

R K Rajwanshi

 

[Mahaganapathi V]

Sir

I think the present system what you are following is right. Since you are not a manufacturer you cannot covert the coils into pipes. So you sell to outsider and purchase back the finished goods with tax. While you make the sale you do CST and collect only 2 % and you feel you are losing 2% due to VAT difference. This should be part of your costing and there cannot be any remady to your activity in the absence of your entitlement to do so. At the same time one cannot sell the product at his cost. Certainly you will load your profit on the input cost. The 2% difference should form part of this.

[Ritesh Kanodia]

Following alternate options are available in this case:

a. The imported raw materials can be imported directly in the name of the Job worker. The term "importer" under the Customs Act has been defined to mean the owner or any person who acts as the importer. In such case, the Job worker would be in a position to take credit on the basis of Bill of Entry filed. The disadvantage is that Job worker will have to obtain IEC and pay appropriate Customs duty.

b. You can import the goods in your own name. You can then pass the credit to the Job worker by raising a First Stage Dealer Invoice. In this regard, it is important to note that the term "First Stage Dealer" inter alia means a person who "purchases" goods from an importer. The term "purchase" has been defined under the central Excise Act,1944 to mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration. Hence, the term purchase under Excise mean transfer of possession.

AI Summary

Cenvat credit for imported inputs may be taken by job worker or routed via first-stage dealer to mitigate tax loss.
A trader who is a Dealer not Manufacturer cannot use manufacturer benefits; recommended operative approaches are: (1) deliver imported coils to the job worker under the prescribed challan so the job worker can opt to pay excise at job completion and claim Cenvat Credit, allowing return of finished goods without separate VAT/CST; (2) import directly in the job worker's name so the job worker can take Bill of Entry credit (requires IEC and payment of customs duty); or (3) import in the trader's name and pass input value via a First Stage Dealer invoice reflecting transfer of possession.