Service Tax on Job Work

[Sanjeev Sharma]

Unit Y got job order from Unit X to manufacture plastic boxes. Raw material will be supplied by X. X will do some finishing work i.e. labelling etc at their own before billing to customer. What chargeability arises for excise duty/ service tax on the part of Y & X both. Will unit X get any modvat/cenvat credit against tax charged by unit Y, if any.

 

[JAMES PG]

Packing, labelling, re-labelling etc amounts to manufacture and is subject to Excise duty. Once ED is charged , there is no liability on ST.

[YAGAY andSUN]

In this matter, Excise duty will be charge by the jobworker to the principal manufacturer on the gross amount of the material supplied by the X to  Y and on the labour portion provided by the Jobworker.

Such duty portion would be available to X as he further do the deemed manufacturing activities as mentioned in Section 2f(iii).

[RAKESH R]

Dear Sanjeev Sharma

I suggest that  'X' can submit an undertaking to the jurisdictional Divisional Office of 'Y' factory as required under the /Notification 214/86 dated 29.4.1986 and follow the procedure set out there.  In such cases, the job oworker 'Y' is totally exempted from payment of duty and the entire duty liability lies on 'X' only.  Further, X is eligible for cenvat credit on the duty paid on raw materials.

Since the activity done by 'Y", though a job work , is a manufacturing activity and hence, out of service tax levy.

Here 'X' has two option

Option (1) he can bring back the processed goods back to his factory and clear on payment of duty after labelling etc.

Option (2) he can get a special permission from his jurisdictional Assistant Commissioner to clear the goods directly from the job worker premises without brining into his factory as provided in Rule 4 (6) of Cenvat Credit Rules, 2004. However, he has to raise invoice, pay duty and then clear from job worker premises after fulfilling the conditions imposed by the Assistant  Commissioner.  In this option, the lablling can be done at job worker pemises itself.

Advised accordingly.

S. GOKARNESAN

Advocate, Chennai

Mobile 98400 87349

mail [email protected]

[JAMES PG]

I do agree that Unit Y can undertake job work under Rule 4(6)/Notification 214/86/ Rule 16 B etc in which case neither ED is payable since X discharges ED. Nor Service Tax is applicable since covered under Mega Exemption notification  no. 25/2012 dated 20.06.12. ( Sl No 30 (c ))

But, it will be treated as exempted service by virtue of Rule 2 (i) of Cenvat Credit Rule, and hence provisions of Cenvat credit reversal under Rule 6 will be applicable. If Y is availing credit of input services, either he has to maintain separate accounts, which may not be feasible for common services, or to reverse proprtionate credit as per formula or has to reverse 6% of the value of exempted service

[RAKESH R]

Dear Mr PG James

Thanks for your responsed to my answer. 

Your further query is also a valid one.

It is a settled Law through various decisions of High Courts / Larger Bench of Tribunal / Tribunals that "Goods manufactured under job work availing exemption Notification 214/86-CE cannot be treated as 'exempted goods' for the purpose of Rule 6 of Cenvat Credit Rule in as much as the duty is paid by the principle manufacturer based on his undertaking ".  The same principle is applicable to availment of input services by the job worker.

In the original query, there is no mention about the job worker whether he is rendering only job work OR he is a manufacturer on his own and also doing job work to decide the cenvat credit issue.  Even if he is a manufacturer of his own goods as well as doing job work, he need not reverse any credit on input services in view of the settled law laid down by High Court and Tribunals

Regards

S. Gokarnesan

Advocate

09840087349

mail [email protected]

 

AI Summary

Job work excise treatment: principal manufacturer bears duty and may claim cenvat; service tax generally not leviable. Job work comprising manufacture, packing and labelling using principal supplied raw materials is treated as manufacture for excise; the principal can discharge duty under the job work exemption procedure, enabling the principal to claim cenvat credit while the job worker remains exempt from duty. Manufacturing by the job worker is not subject to service tax. Cenvat reversal issues arise for input services used by the job worker, but established authorities have held that where the principal pays duty under the prescribed undertaking, goods processed under the job work exemption are not treated as exempted for cenvat reversal purposes.