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Tuesday , February 9, 2016 | Updated : Feb 9, 18:35 IST
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Govt increases Tariff Value of gold & silver (See 'NT 23' in What's New) CBEC field formations ask how to interpret SLP 'in limine'? - Board clarifies at length (See Circular in 'Excise') Over two crore cases are pending in the country's lower courts: Law Ministry Govt revises All Industry Rates of Duty Drawback for many items effective 11.02.2016 (See 'Notification 22' in 'What's New') India is through with its homework; about to approve WTO Trade Facilitation Agreement, says Commerce Secretary Former Nepal PM Sushil Koirala passes away in Kathmandu; PM says India has lost a valuable friend Competition Appellate Tribunal stays penalties totalling Rs 106 crore imposed by CCI on IndiGo and SpiceJet SC declines to entertain PIL on farmer's suicide Bombay HC advises MSRTC to modernise bus stands by providing WiFi service, private canteens and better toilets to lure passengers I-T - Whether for purpose of computing deduction u/s 80IC, sale of scrap is to be held as eligible item for deduction u/s 80IC - YES: ITAT (See 'Breaking News') In spite of repeated instructions from Board, a large number of grievances have not been disposed of within prescribed timeline - CBDT Chief (See 'DDT' Column) ST -It is a common knowledge that any Insurance company is required to have chairs and tables to render services to their clients - CENVAT Credit admissible of CE duty paid on chairs & tables: CESTAT (See 'Breaking News') Looking through Section 32AC of Income Tax Act (See 'Budget Run-up') CX - Notf. 64/95-CE - D.G sets & parts supplied to Mazagon Dock for construction of warship of Indian Navy - it is nowhere mentioned in condition to notification that goods have to be supplied to Indian Navy - Exemption available: CESTAT (See 'Breaking News') Rebate and Advance Authorization Scheme (See 'Guest' Column) Whether when there is no dispute that assessee was entitled to full tax rebate by virtue of a High Court decision, would it be just and fair to direct revenue to consider prayer of petitioner for rectification - YES: HC (See '2016-TIOL-231') India comes with a big bang- startup India standup India! (See 'Budget Run-up') Whether an application for anticipatory bail deserves acceptance in cases of embezzlement of huge public money - NO: HC (See '2016-TIOL-228') Fall in Collection of Income Tax - Concerned Chairman (See 'DDT') IGI Airport Customs seizes USD 1.9 lakh worth Rs 1.28 Crore from pax heading for Kabul Per Capita net national Income likely to be Rs 93231; Construction industry likely to record 3.7% growth in current fiscal: CSO JNPT extends rebate on containers wheeled by rail to Navi Mumbai CFS President transfers Justice Hiralal Waghela from Orissa to Bombay HC + Justice Hemant Gupta from P & H to Patna High Court TRAI fiat against discriminatory pricings of data services (See 'Mixed Buzz') Income Tax Collections reach only 65.40% of Budget Estimates; CBDT Chairman asks CITs to step up efforts Are original documents required to be filed for claiming refund? (See 'ST se GST tak') Govt increases Tariff Value of gold & silver (See 'NT 23' in What's New) CBEC field formations ask how to interpret SLP 'in limine'? - Board clarifies at length (See Circular in 'Excise') Over two crore cases are pending in the country's lower courts: Law Ministry Govt revises All Industry Rates of Duty Drawback for many items effective 11.02.2016 (See 'Notification 22' in 'What's New') India is through with its homework; about to approve WTO Trade Facilitation Agreement, says Commerce Secretary Former Nepal PM Sushil Koirala passes away in Kathmandu; PM says India has lost a valuable friend Competition Appellate Tribunal stays penalties totalling Rs 106 crore imposed by CCI on IndiGo and SpiceJet SC declines to entertain PIL on farmer's suicide Bombay HC advises MSRTC to modernise bus stands by providing WiFi service, private canteens and better toilets to lure passengers I-T - Whether for purpose of computing deduction u/s 80IC, sale of scrap is to be held as eligible item for deduction u/s 80IC - YES: ITAT (See 'Breaking News') In spite of repeated instructions from Board, a large number of grievances have not been disposed of within prescribed timeline - CBDT Chief (See 'DDT' Column) ST -It is a common knowledge that any Insurance company is required to have chairs and tables to render services to their clients - CENVAT Credit admissible of CE duty paid on chairs & tables: CESTAT (See 'Breaking News') Looking through Section 32AC of Income Tax Act (See 'Budget Run-up') CX - Notf. 64/95-CE - D.G sets & parts supplied to Mazagon Dock for construction of warship of Indian Navy - it is nowhere mentioned in condition to notification that goods have to be supplied to Indian Navy - Exemption available: CESTAT (See 'Breaking News') Rebate and Advance Authorization Scheme (See 'Guest' Column) Whether when there is no dispute that assessee was entitled to full tax rebate by virtue of a High Court decision, would it be just and fair to direct revenue to consider prayer of petitioner for rectification - YES: HC (See '2016-TIOL-231') India comes with a big bang- startup India standup India! (See 'Budget Run-up') Whether an application for anticipatory bail deserves acceptance in cases of embezzlement of huge public money - NO: HC (See '2016-TIOL-228') Fall in Collection of Income Tax - Concerned Chairman (See 'DDT') IGI Airport Customs seizes USD 1.9 lakh worth Rs 1.28 Crore from pax heading for Kabul Per Capita net national Income likely to be Rs 93231; Construction industry likely to record 3.7% growth in current fiscal: CSO JNPT extends rebate on containers wheeled by rail to Navi Mumbai CFS President transfers Justice Hiralal Waghela from Orissa to Bombay HC + Justice Hemant Gupta from P & H to Patna High Court TRAI fiat against discriminatory pricings of data services (See 'Mixed Buzz') Income Tax Collections reach only 65.40% of Budget Estimates; CBDT Chairman asks CITs to step up efforts Are original documents required to be filed for claiming refund? (See 'ST se GST tak')
 
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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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