Service tax on Job Work

[Murari Agrawal]

Branded shoe owner supplies raw materials, components, packing box for manufacturing and packing finished shoes to us on job work basis. The shoes are below the value of Rs.500/-. Is there any Service tax liability upon us for carrying out such activity.

[JAMES PG]

If your taxable turnover is above Rs 10 lacs, Service Tax is payable since final product is exempted and principal manufacturer do not pay ED

[Murari Agrawal]

Thanks very much Mr James. Kindly also let me know whether this position is from 1st July, 2012 or from earlier period.

[JAMES PG]

Threshold exemption limit of Rs 10 lacs is applicable from 1.04.08 onwards. Prior to this, the exemption limit was Rs 8 lacs ( increased from Rs 4 lacs in 2007-08)

[Murari Agrawal]

I have been told by a friend who is employed with a large scale unit that as per Board Circular reproduced below, since the footwear shoes are dutiable but exempted for value(4.6.2), service tax may not be leviable.

Clarification by the Board

(Circular  No. D. O. F. No 334/1/2012-TRU Dated: - March 16, 2012)        

“4.6 Processes amounting to manufacture or production of goods

The phrase ‘processes amounting to manufacture or production of goods’ has been defined in section 65B of the Act as a process on which duties of excise are leviable under section 3 of the Central Excise Act,1944 (1 of 1944) or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act. This entry, therefore, covers manufacturing activity carried out on contract or job work basis provided duties of excise are leviable on such processes under the Central Excise Act,1944. or any of the State Acts.

4.6.1 Would service tax be leviable on processes which do not amount to manufacture or production of goods?

Yes. Service tax would be levied on processes, unless otherwise specified in the negative list, not amounting to manufacture or production of goods carried out by a person for another for consideration. Some of such services relating to processes not amounting to manufacture are exempt as specified in entry no. 30 of Exhibit A2.

4.6.2 Would service tax be leviable on processes on which Central Excise Duty is leviable under the Central Excise Act,1944 but are otherwise exempted?

No. If Central Excise duty is leviable on a particular process as the same amounts to manufacture then such process would be covered in the negative list even if there is a central excise duty exemption for such process.”

Kindly  clarify.

[JAMES PG]

Yes, it is correct. But if you are availing Cenvat credit, you are likely to be covered by the provisions of Rule 6(3) of  Cenvat Credit Rule which provides for reversal of credit as per the prescribed formula or 6% of the value of service.

AI Summary

Service tax on job work: manufacture classification and threshold determine liability, with Cenvat credit reversal implications. Liability for service tax on job-work in footwear depends on the taxable turnover threshold and whether the processes qualify as processes amounting to manufacture; if excise law treats the process as manufacture (even if excise duty is exempted) it falls in the negative list and service tax may not be leviable. If Cenvat credit is availed, reversal rules apply requiring specified reversal or payment under the prescribed formula.