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

Proprietary firm liable for excise duty on manhole fabrication; may qualify for SSI exemption. Service tax not applicable. A proprietary firm receives an order from a limited company to fabricate and deliver manholes/handholes, purchasing all raw materials and using contract labor. The sales price, set by the limited company, includes material, fabrication, and transportation costs but excludes service tax. The firm queries whether this activity is subject to service tax or excise duty. The response indicates that the transaction is liable to excise duty, not service tax, with the proprietary firm responsible for this duty. The firm may qualify for Small Scale Industry (SSI) exemption.