For the purpose of "Business Auxiliary Service" the definition of section 65(19)(v) of Finance Act, 1994 (Service Tax) provides that an activity of "production or processing of goods for, or on behalf of, the client" is a taxable activity. However an activity which is amounting to manufacture within the meaning of section 2(f) of Central Excise Act, 1944 is excluded from the scope of service tax under "Business Auxiliary Service"

There is a wide confusion over applicability and taxability of job working activity because, there is wide gap in different interpretation of provisions of the provisions of service tax relating to Job working activity under Business Auxiliary Service.

Now the board has clarified the Issues relating to taxable services provided during the course of production of alcoholic beverages (such as Indian Made Foreign Liquors, Branded Country liquors and similar products) vide circular  F.No. 249/1/2006-CX.4 dated 27-10-2008.

From the circular, the following issues seems to be settled now:

1              All the activities which are amounting to manufacture shall not be taxable under the provisions of service tax (Business Auxiliary Service) even if such activity is not subject to central excise duty.

2              All the activities which are subject to state excise duty shall also be out of service tax net if the criteria of manufacture are being satisfied.

3              All the processes which are not amounting to manufacture as per section 2(f) of central excise act, 1944 shall be subject to service tax.

4              Section 65(19) of the Finance Act, 1944 has imported the term "manufacture" from the central excise act, 1944. It does not import the scope of excise duty to the service tax net.

See:

Circular F.No. 249/1/2006-CX.4 dated 27-10-2008.

Manufacture exclusion: activities amounting to manufacture are outside service tax, non-manufacture processes remain taxable. Activities on job work producing alcoholic beverages are excluded from Business Auxiliary Service tax if they amount to manufacture as defined in central excise law; processes subject to state excise are also excluded when they meet the manufacture test. Processes not amounting to manufacture under section 2(f) remain taxable under service tax. The term manufacture is imported from the Central Excise Act for determining exclusion, without importing the wider excise duty regime.