Liability and applicability of service tax

[sunil mehta]

Dear Sir, A proprietory firm gets order from a ltd. co. to 'prefabricate,sell and hand over Manhole/Handhole as per specifications & drawings given by ltd.co. i)Raw materials like cement,steel etc are 100% to be purchased by proprietory firm(i.e.processor ). ii)Proprietory firm gets this work done through contract labourers. iii)Finished goods to be delivered at site of ltd.co. iv)sales price is fixed by ltd.co which is inclusive of material cost+ fabrication cost + transportation cost)excluding service tax. v)Activity of fabrication is done only on such orders.It is not a regular business.If order gets cancelled then 'Manhole/Handhole may or may not be saleable in open market. Query:1)Whether above activity of proprietoy firm is subjected to ser.tax or excise duty ? ii)sales price is inclusive of transportation.Who isliable to ser.tax ?

[Surender Gupta]

From the query it appears that the transaction is liable to excise duty and not service tax. And once, it is decided that the activity is manufacturing activity and liable to excise duty, the burden of discharging excise duty is on the Manufacturer i.e. proprietory firm. However, the same may also be eligible for SSI exemption.

AI Summary

Manufacturing activity classification: excise duty applies not service tax and liability rests with the manufacturer. Where a proprietor purchases raw materials, fabricates goods to buyer specifications and delivers finished products, the activity is treated as manufacture and sale subject to excise duty rather than service tax; the manufacturer is liable to discharge excise duty and may qualify for Small Scale Industry exemption if statutory conditions are satisfied.