Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com HRindiaonline.com
 
LOGIN
Forgot Password |  Register
Saturday , November 1, 2014 | Updated : Nov 1, 14:51 IST
Income Tax    Customs    Excise    Service Tax    FEMA    DGFT    SEZ    Misc    Pitara    Budget   
About Us Contact Us Advertise
Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com
NEWS FLASH
 
Modi Sarkar's fight against black money is so white, so useless! (See 'ICE CUBES') Major focus of Govt is to bring back growth momentum in economy: Finance Minister (See 'Breaking News') Govt hires just-retired CBDT Chairman K V Chowdary as Adviser on Black Money in Department of Revenue (See 'Service News' in Pitara) Cyber Crime prevention strategy will be strengthened: Home Minister (See 'Mixed Buzz') CBEC reduces tariff value of gold & silver (See 'NT 100' in What's New) Electronic Toll Collection System makes Delhi-Mumbai Drive faster and cheaper (See 'Mixed Buzz') CE - At rectification of mistake stage, re-appreciation of evidence is not permissible - If appellant is aggrieved of same, remedy lies in filing an appeal-ROM application dismissed: CESTAT (See 'Breaking News') CBEC issues posting order of 2158 ACs (See 'Transfer' in 'Pitara') Anandrajan appointed as OSD to TPL-II in CBDT (See 'Transfer' in Pitara) Chandra Garg goes to World Bank as ED CBDT notifies teritorial jurisdiction of Principal CCITs and Principal Commissioners (See Notification 50 in 'What's New') Coal Scam: Former Coal Secretary gets bail with two others India votes against UN Resolution on nuclear non-proliferation treaty Standing Committee on Railways invites suggestions to prevent filing of duplicate compensation claims (See 'Mixed Buzz') Anita Kapur gets Addl Charge of CBDT Chairperson + Kaushal Srivastava gets Addl Charge of CBEC Chairman (See 'Service News' in Pitara) Exemption to goods imported for CWG - Exemption extended to suppliers & vendors of Organising Committee by amending Notifn No 84/2010 cannot be applied retrospectively: CESTAT (See 'Breaking News') Indian Austerity Service: Babus asked to tighten belts - Austerity in Administration (See 'DDT' Column) SIT on Black Money decides to seek public help to build database on foreign bank account holders Income tax - Whether when income of assessee is finally assessed u/s 115JB and not under normal provisions of Act, addition can still be made with respect to income determined under normal provisions - NO: ITAT (See 'Breaking News') Issue of shares by Indian Companies under ADR & GDR (See 'Guest' Column) Swiss Revenue not in favour of Indian Revenue sharing data even with Courts CX - Balance sheet figures included quantity of re-rolled products traded - demand on differential quantity dropped by CCE & Revenue appeal dismissed by Tribunal - in grounds taken by Revenue, there hardly exists any element of law - Reference rejected: HC (See 'Breaking News') Should Customs Assistant Commissioners wear uniform? (See 'DDT') Income tax - Whether RTO charges paid one time are revenue expenditure: ITAT (See '2014-TIOL-794') PMJDY to boost savings rate in economy: Official (See 'Mixed Buzz') FM asks CCITs not to lose sight of domestic black money generation (See 'Mixed Buzz') Lucknow DRI seizes 55000 kg Red Sanders worth Rs 25 Cr from export container lying at Tughlakabad ICD; Four persons arrested Govt launches austerity drive; no more first class travel; non-plan expenditure to be cut by 10% to contain fiscal deficit at 4% Trichy Airport Customs seizes gold bars worth Rs 82 lakhs abandoned in gents' toilet ACC cancels transfer of Arvind Mayaram to Ministry of Tourism; he now goes to Ministry of Minority; Expenditure Secretary gets Addl Charge of Economic Affairs for one month India re-elected to UN Economic & Social Council Investigation into Black Money in Foreign Bank Accounts: Is there any Room for hatchet job? (See 'The Cob(Web)' Column)
 
Bookmark and Share
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)


POST YOUR COMMENTS
   
 
 
TIOL Mobile App
TIOL SEARCH
 
TIOL Subscriptions
 All-In-One Package
 Indirect Tax Package
 Income Tax Package
<< More Packages>>
 
   
             
Income Tax Customs Excise Service Tax FEMA DGFT SEZ Misc Pitara Budget
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • ITAT Cases
  • Instructions
  • Advance Ruling
  • Settlement
  • Other Case
  • Directorate of Income Tax (Systems)
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Safeguard Duty Notfn
  • Anti-dumping Notfn
  • Drawback Cases
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Excise Amendment
  • Clean Energy Cess Notfn
  • MISC Circulars
  • 37B Order
  • Commr.(A) Order
  • CESTAT
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Miscellaneous
  • Advance Ruling
  • FAQ
  • Finance Act, 1994
  • Commr. (A) Orders
  • 37B Order
  • Removal of Difficulty
  • VCES
  • Accounting Head
  • Exchange Manual
  • Fema Notifications
  • SC Cases
  • HC Cases
  • RBI Notifications
  • Act
  • Rules
  • Regulations
  • Master Circulars
  • RBI Circulars
  • Notifications
  • Circulars
  • Public Notices
  • Trade Notice
  • FTDR Amendment 2010
  • MISC
  • State Acts
  • Notifications
  • Instructions
  • Act 2005
  • Rules 2006
  • DGEP
  • State Policy
  • SC Cases
  • HC Cases
  • VAT Cases
  • Deputation Posts
  • Service News
  • The Insider
  • Transfer
  • Promotion
  • Recruitment Rules
  • Transfer Policy
  • Training Circulars
  • Service Cases
  • MISC
  • Pay Commission
  • Cadre Review
  • Budget Circular 2013-14
  • Union Budgets
  • Economic Surveys
  • Budget Speeches
  • Finance Acts
  • Finance Bill
  • TRU - D. O. Letter
  • A Taxindiaonline Website. Copyright © 2014 Taxindiaonline.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension