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Tuesday, September 18, 2012

Job work which does not amount to manufacture is taxable under Service Tax Law


Ours is a SSI unit manufacturing reprocessed plastic granules. We do jobwork for a customer who manufactures excisable goods — i.e., plastic hangers. They send us plastic scrap/chips for processing into granules, which they use for making hangers. I want to know whether reprocessing of plastic scrap is manufacturing or whether service tax is applicable. In your case, there is a transformation, in the sense that plastic scrap is converted into plastic granules. The process you carry out results in emergence of a new commodity as known to the market. Therefore, what you do is manufacture under Central Excise law. 

Clause (f) of Section 66D of the Finance Act, 1994 brings “any process amounting to manufacture or production of goods” within the ambit of the negative list of services. Therefore, only the services of job-work that do not amount to manufacture are taxable under the service tax law. As the activity you carry out amounts to manufacture, the same falls within the scope of the negative list of services, and so, you need not pay service tax. We have an order from a nuclear power plant. Can we get refund of Terminal Excise Duty (TED) for supplies? 

Para 8.2 (j) of the Foreign Trade Policy (FTP) covers supply of goods to nuclear power projects through competitive bidding as opposed to ICB. Supply of only those goods required for setting up any nuclear power project as specified in list 33, S. No. 511 of Notification No. 12/2012 Customs dated 17.3.2012, as amended from time to time, having a capacity of 440 Mw or more, as certified by an officer not below the rank of Joint Secretary to Government of India, in Department of Atomic Energy, shall be entitled for deemed export benefits, in cases where procedure of competitive bidding (and not ICB) has been followed. 

As per Para 8.3 (c) of the FTP, deemed exports shall be eligible for exemption from TED where supplies are made against ICB. In other cases, refund of TED will be given. So, if you meet the conditions given in Para 8.2 (j) of the FTP and the supply of goods you manufacture in India are against competitive bidding, then you can get TED refund. Is a job-worker required to pay service tax if he is printing the name of any other company on the label/box? S.No. 30 (i) of notification no. 25/2012-ST dated 20.06.2012 exempts service tax on the service of carrying out an intermediate production process as job-work in relation to agriculture, printing or textile processing. From which date is service tax applicable on job-work in the pharmaceutical industry? ‘Production of goods on behalf of the client’ was brought into the service tax net with effect from 10.09.2004 under the definition of ‘Business Auxiliary Service’ at Section 65(19) of the Finance Act, 1994. 

That entry was amended with effect from 16.6.2005 as ‘production and processing of goods for and on behalf of the client’. 


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