service tax on manufacturing job work

[N M JAIN]

We are pharmaceutical manufacturing company. We are processing one of our customer's raw material and supplying them finished herbal drugs. The customer is not under registration with central excise whereas we being in Uttarakhand are exempt from levying excise duty.

Our specific querry is whether we are liable to charge service tax on job work done by our Plant ?

 

[ashish koppa]

Any process amounting to manufacture is specifically stated in the negative list section 66D (f). Therefore no service tax is leviable on the actiivity of processing.

Manufacture has been defined to include manufacture of narcotics on which CED is not leviable. As confirmed by the guidance note issued by the department, the position does not change if the same is exempted.

Please ensure that your activity amounts to manufacture.

regards

CA Ashish Koppa

[email protected]

[CASeetharaman KC]

As per Rule 10A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules,2000 the position is as specified below:

Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, -

(i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;

(ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker;

(iii) in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods :

Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.

Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.

The crux of the issue therefore is that either service tax or excise duty would be definitely payable and this kind of processing is very common in pharma industry. So even if the activity amounts to manufacture excise duty would be payable at clearance value as provided in Rule 10A. 

I would advise you to discuss this issue with the principal manufacturer whose job work you are doing.

 

AI Summary

Manufacture exclusion from service tax may shift levy to excise duty on job-work clearances under valuation rules. Processes amounting to manufacture are excluded from service tax under the negative list entry, and exemption from central excise does not change that position. When goods are produced by a job-worker for a principal, Rule 10A prescribes excise valuation: transaction value at removal where sold by the principal, normal transaction value where removed for sale from another place, and otherwise application of valuation rules mutatis mutandis; transportation cost is excluded and 'job-worker' is defined as one manufacturing on inputs supplied by the principal or an authorised person.