Taxindiaonline.com
Taxindiaonline.com Taxindiaonline.com TIOL Tube Taxindiainternational.com
 
LOGIN
Forgot Password |  Register  
Thursday , December 8, 2016 | Updated : Dec 8, 19:02 IST
GST   Income Tax    Customs    Excise    Service Tax    FEMA    DGFT    SEZ    Misc    Pitara    Budget   
About Us Contact Us
Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com
 
 
NEWS FLASH
 
Modi Govt rolls out tax incentive, discounts and concessions if payments are made by credit or debit cards; 10% discount by toll plaza; No service tax upto Rs 2000 (See 'Breaking News') I-T - Whether when loss-making Indian subsidiary of a non-resident company receives some voluntary contribution from parent, aimed at protecting its investments, such payment is to be construed as capital receipt - YES: SC (See 'Breaking News') Import duty on Wheat reduced from 10% to NIL (See 'Notifn 60' in What's New) India-UK Conference on Ease of Doing Business (See 'Mixed Buzz') Govt mulling tax sops for digital payments upto a limit GST - Let's not water down the Territorial Waters issue (See 'THE COB (WEB)' Column) Cabinet okays proposal to rechristen Delhi-Mumbai Corridor as National Corridor (See 'Mixed Buzz') Deposits in Jan Dhan Accounts Not Alarming - Income Tax Department (See 'DDT') I-T - Whether literal interpretation of terms while construing document can be ground for reversal of an order based on undisputed facts found during search & seizure operations - NO: HC (See 'Breaking News') Income Tax Staff to be diverted to Investigation Directorate (See 'DDT') ST - Whatever may be activity of work contractor, it is nature of services of Appellant that has to be looked into for imposition of service tax: CESTAT (See 'Breaking News') Unemployment is more among Graduates: Labour Minister (See 'Mixed Buzz') Rs.3.81 Trillion worth bank notes supplied by RBI and there is more - RBI (See 'DDT') EPFO takes steps to cover Contract Workers in Govt Departments (See 'Mixed Buzz') Merger of Plan and Non Plan expenditures (See 'DDT') Cus - Whatever may be circumstances under which goods could not be cleared from bonded warehouse, duty liability would be at rate prevalent at time of filing ex-bond BoE and not when they were bonded: CESTAT (See 'Breaking News') Government, biggest Litigant (See 'DDT') Union Cabinet approves Metro Project for Pune + Nutrient-based subsidy rates for phosphatic & potassic fertilisers for current fiscal RBI lowers GDP growth rate to 7.1%; No change in interest rate Income Tax Department identifies Jan Dhan accounts subjected to heavy deposits CBDT Chairman asks field formations to provide hands to Investigation Wing (See 'Instruction' in Income Tax) Manufacture of 'Other Tobacco Products' - Compulsory Licensing under consideration: Minister Govt issues 96 India Business Cards to businessmen from SAARC Recommendations to Govt: Include Exempted Depts within purview of EPF (See 'Mixed Buzz') Govt notifies rule to amend PML(Appeal) Rules, 2005 (See 'PMLA Notifn' in FEMA) Govt to plan for compulsory licensing of Tobacco (See 'Mixed Buzz') Govt to introduce Centralized Public Grievance Redressal system (See 'Mixed Buzz')
 
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
   
 
 
 
Download on the App Store
Get it on Google play
TIOL SEARCH
 
TIOL Subscriptions
 All-In-One Package
 Indirect Tax Package
 Income Tax Package
<< More Packages>>
Visit TIOLCorplaws.com
 
   
             
Income Tax Customs Excise Service Tax FEMA DGFT SEZ Misc Pitara Budget
  • Income-Tax Rules
  • Income-Tax Act
  • Notifications
  • Circulars
  • Instructions
  • SC Cases
  • HC Cases
  • ITAT Cases
  • Advance Ruling
  • Settlement
  • Other Cases
  • Directorate of Income Tax (Systems)
  • Reports
  • Customs Rules
  • N T/CAA/DRI
  • Tariff Notfn
  • CVD
  • Non Tariff Notfn
  • Circulars
  • Anti-dumping Notfn
  • Safeguard Duty Notfn
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • Settlement
  • Drawback Cases
  • MISC Circulars
  • CCRs - 2004
  • Central Excise Rules
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • Cesses Notfications
  • Excise Amendment
  • MISC Circulars
  • 37B Order
  • Settlement
  • Commr.(A) Order
  • Tribunal
  • GST Kitty
  • Notifications
  • Service Tax Rules
  • 37B Order
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Advance Ruling
  • FAQ
  • Finance Act, 1994
  • Commr. (A) Orders
  • Removal of Difficulty
  • VCES
  • Accounting Head
  • Miscellaneous
  • DIPP Notification
  • FDI Approved
  • Exchange Manual
  • Fema Notifications
  • SC Cases
  • HC Cases
  • RBI Notifications
  • RBI Circulars
  • Act
  • Rules
  • Regulations
  • Master Circulars
  • PMLA Notifications
  • Depository Scheme
  • Press Note
  • Notifications
  • Circulars
  • Public Notices
  • Trade Notice
  • FTDR Amendment 2010
  • Notifications
  • Instructions
  • Act 2005
  • Rules 2006
  • DGEP
  • State Acts
  • State Policy
  • MISC
  • SC Cases
  • HC Cases
  • VAT Cases
  • Miscellaneous
  • Service News
  • Promotion
  • Transfer
  • Deputation Posts
  • Cadre Review
  • Transfer Policy
  • Training Circulars
  • Recruitment Rules
  • Pay Commission
  • Service Cases
  • The Insider
  • MISC
  • Budget Speeches
  • Union Budgets
  • Economic Surveys
  • TRU - D. O. Letter
  • Finance Acts
  • Finance Bill
  • Budget Circular
  • A Taxindiaonline Website. Copyright © 2016 Taxindiaonline.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension