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Saturday , August 1, 2015 | Updated : Aug 1, 11:36 IST
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(See 'Guest' Column) Whether when the assessee has accepted assessment order, correctness of which can also be agitated before revisional authority, cannot directly challenge consequential recovery notice before HC - YES: HC (See '2015-TIOL-1730-HC') Tribunal to correct its approach so as to ensure such lapses do not recur (See 'DDT') I-T- Whether profit on cancellation of forward marketing contract is to be treated as export turnover within the meaning of Section 80HHC - YES: HC (See '2015-TIOL-1733-HC') World's population - India projected to surpass China in 7 years; Nigeria to surpass USA for third place (See 'Mixed Buzz') CBDT notifies New Forms - ITR-3, ITR-4, ITR-5, ITR-6 & ITR -7 Indians dying due to antibiotic resistance - Govt admits it does not collect data (See 'Mixed Buzz') Compliance Window - Declaration not admissible as evidence; Minister (See 'Mixed Buzz') CBDT promotes 3 CCITs as Principal CCITs; Dinesh Verma is New Principal CCIT in Bengaluru (See 'Promotion'in 'Pitara') Govt promises SEBI's black eye to black money (See 'Mixed Buzz') CX - Valuation - Transaction Value - whether transportation and insurance cost to be included in value - What is to be determined is 'place of removal' and that depends on facts of each case; - perfunctory manner in which appeal of assessee is allowed by Tribunal, cannot be countenanced: Supreme Court (See 'Breaking News') Manual - Scrutiny of returns - Are Executive Commissionerates usurping powers of Audit Commissionerates? (See 'ST se GST tak') Customs - Exempted Imports - Export Obligation - Even if DGFT holds that export obligation is fulfilled, it is not binding on Customs: Supreme Court (See 'Breaking News') CBDT simplifies procedures for e-filing, e-payment and online application for PAN (See 'Mixed Buzz') Cus - There is no provision for filing ROM application against order of Tribunal deciding ROM application - Application not maintainable, hence dismissed: CESTAT (See 'Breaking News') Latin America and Caribbean economies slowing down: UN Forum (See 'Mixed Buzz') I-T- Whether when time limit for investment in shares is six months from date of transfer and even if such investment falls under two financial years,benefit claimed by assessee cannot be denied - YES: ITAT (See '2015-TIOL-1188-ITAT') OMCs reduce petrol price by Rs 2.43 per litre & Diesel by Rs 3.60 per litre AP and Karnataka urge Centre to hike import duty on raw silk to at least 15% Anusha Khurana, IRS, 97 batch, goes to Competition Commission as Joint DG DoP&T empanels 74 IRS officers for JS-level posts under Central Staffing Scheme (See 'Service News' in Pitara) Two IRS Officers posted as OSDs in CBEC (See 'Transfer' in Pitara) CBEC reduces Tariff Value of Silver, all oils & brass scrap (See 'What's New') Imbroglio continues in RS; No business transacted ST - Appellant collects toll & deposits same with NHAI and either retains part of sum which was collected as toll or gets fixed amount by NHAI - collection of toll is not to be considered as BAS provided to NHAI: CESTAT (See 'Breaking News') ST - Commission for promoting of auto loans - Appellant admitted that in case of HDFC Bank they had raised debit notes for ST but bank did not pay - This is no excuse for not paying tax - extended time period is invokable: CESTAT (See 'Breaking News') CBDT Notifies new ITR Forms (See 'DDT' Column) Exemption certificate can be signed by CEO of PSU - Notfn. 39/96-Cus amended (See 'What's New') Exemption to Anti-Tuberculosis Drugs, Diagnostics & Equipments extended till 01.04.2016 (See 'What's New') I-T - Whether if assessee was originally claiming Sec 10B benefits, it can claim Sec 10A benefits once it acquires a running business having entitlement for claiming deduction u/s 10A - YES: ITAT (See 'Breaking News') CENVAT Credit on M.S.Plates, M.S.Angles, M.S.Channels and H.R. Plates used for construction of plant - High Court sets aside order of Tribunal denying credit prior to 07.07.2009 (See 'Breaking News') Reduction of CENVAT credit on Intangible Services + Consultant pocketing Service Tax and giving forged challans to assessee (See 'DDT') Is there rampant misuse of Notification Nos 49 & 50/2003-CX? (See 'Guest' Column) Whether when the assessee has accepted assessment order, correctness of which can also be agitated before revisional authority, cannot directly challenge consequential recovery notice before HC - YES: HC (See '2015-TIOL-1730-HC') Tribunal to correct its approach so as to ensure such lapses do not recur (See 'DDT') I-T- Whether profit on cancellation of forward marketing contract is to be treated as export turnover within the meaning of Section 80HHC - YES: HC (See '2015-TIOL-1733-HC') World's population - India projected to surpass China in 7 years; Nigeria to surpass USA for third place (See 'Mixed Buzz') CBDT notifies New Forms - ITR-3, ITR-4, ITR-5, ITR-6 & ITR -7 Indians dying due to antibiotic resistance - Govt admits it does not collect data (See 'Mixed Buzz')
 
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Service tax on job work : Still in a mess!

By Santosh Hatwar

BUSINESS Auxiliary service was in the news recently thanks to the ingenuity of certain field officers’ over enthusiasm in netting small time job workers in the Gems and jewellery sector into the service tax fold. This prompted the Board to issue a circular No. 341/13/2005 TRU dated 12.05.2005 on the subject of levy of service tax on certain processes under taken on job work basis in gems and jewellery sector. The changes brought in by the Finance Bill 2005 (now Finance Act 2005) in the definition of Business Auxiliary service was also mentioned and finally it was stated that those processes which are outsourced in gem and jewellery sector which amount to manufacture within the scope of Section 2(f) of the Central Excise Act, 1944 would not be liable for service tax. Production of goods on behalf of the client is leviable to service tax only if such production activity does not amount to manufacture. Is there anything new in the clarification? Does it clarify anything at all in the first place except for restating what is available in the statute? Let us delve into the provisions related to this levy that has been the subject of one controversy or the other since its inception.

The scope of Business auxiliary service for the purpose of levy of service tax was extended with effect from 10.09.2004 to include “production of goods on behalf of the client” by amending clause (19) of Section 65 of the Finance Act 1994. This clause was further amended by Section 88 of the finance bill 2005 by substituting the existing clause with a new clause viz., “production or processing of goods for, or on behalf of the client”. Further vide Notification No. 8/05 ST dated 01.03.05, “production on behalf of the client” is exempted from service tax if these job worked goods are produced from the raw materials or semi finished goods supplied by the client and these are returned back to their clients for use in or in relation to the manufacture of final products on which excise duty is payable. This concept of “production or processing of goods for, or on behalf of the client” is commonly referred to as job work in trade parlance.

As per the explanations to this Notification the production of goods undertaken should not amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944 and duty payable goods does not include goods which are wholly exempt from duty or nil duty goods. For the purpose of this Notification the words production and processing are used interchangeably though they do not mean the same. The Web definition of production in economics is manufacturing or mining or growing something (usually in large quantities) for sale; e.g., "he introduced more efficient methods of production”. Similarly processing is defined as preparing or putting through a prescribed procedure for e.g., "the processing of ore to obtain minerals". In Webster’s college dictionary production means, “ the act of producing; creating or manufacture” and processing means “ a systematic series of actions directed to some end”; “ a continuous action, operation, or series of changes taking place in a defined manner”.

If we look at these definitions in the backdrop of excise and service tax laws it is clear that production and manufacture mean one and the same and therefore can be used interchangeably which is normally the case. But when it comes to processing, it may or may not amount to production or manufacture depending on the nature of processes involved in the act. However, the explanation (i) to the Notification states that this production should not amount to manufacture thereby resolving to certain extent that production is not always manufacture in service tax. So far so good, but what is the fate of “processing”? The service tax levy is on “production or processing of goods for, or on behalf of the client” and the exemption is given only to “production on behalf of client”.

As is normally understood the activity of “production of goods on behalf of the client” is the practice followed in the pharmaceutical industry i.e., manufacture on loan licensee basis, jewellery industry, textiles and a host of other sectors of industry that are either process intensive or labour intensive. In all these cases normally the job worker is treated as manufacturer and excise dues are discharged by the job worker only. As the Notification speaks of exempting only production of goods on behalf of the client that in any case stands exempted by virtue of such activity being viewed as manufacture. In my opinion, as per the Notification, the exemption is applicable only when it is “production of goods on behalf of the client” as it does not speak of the “processing of goods for, or on behalf of the client” explicitly.

Alternatively, if the words production and processing are used interchangeably as it appears to suggest in their liberal usage in the Notification as well as the definition of the taxable service in the Act, then it ultimately boils down to the usage of these produced/processed goods by the client of the job worker (including those in the gems and jewellery sector). The client of the job worker should use these produced/processed goods in their manufacturing activity and the resultant final products should be cleared only on payment of duty. If the final products at the client’s end are cleared without payment of duty then this exemption is not applicable and the job worker has to discharge service tax. Fortunately small time job workers (including those in the gems and jewellery sector) can benefit from the value-based exemption introduced by Notification No. 6/05 ST dated 01.03.05 irrespective of the treatment meted to the term “processing”. Anyway the drafting of this Notification has put the job worker in any sector, including the gems and jewellery segment at the mercy of information furnished by the client. In any case this needs an immediate clarification or an amendment in the Notification to include “processing for, or on behalf of the client” to avoid unnecessary litigations in the field.

(The author is working with the Department and the views expressed are strictly personal)


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