Job work & Service Tax, Service Tax

[Srivatsan Krishnamachari]

Dear Experts,

I need clarification on one issue. X company is doing job work for Y company, where Y company is paying excise duty on the total material value. Where as X company is not paying any service tax on the job work done. Since Y company is paying excise duty on the total value of the material, is it essential to pay service tax by X company?

Kindly clarify

Srinivas

Posts / Replies

[KASTURI SETHI]

Sir, No ST is to be paid as CE duty stands paid.

[Ganeshan Kalyani]

Sir, You are paying Excise Duty it means the activity carried out by company X is a manufacturing activity and thus service tax is not applicable. Either service tax or excise duty is leviable depend upon the nature of activity/ process carried out by Job worker. Thanks.

[Rajagopalan Ranganathan]

Sir,

Situation: -I

If the process undertaken by the job worker, namely company X amounts to manufacture under Section 2 (f) of Central Excise Act, 1944, then X has to pay duty on the product manufactured by him. The duty amount paid by X can be taken as credit by Y company and an utilize the same for payment of duty on the final product manufactured by Y. If Y company avails Notification No. 214/86-CE dated 25.3.1986, then Y company can take the credit of duty paid on the raw materials which is transfered to the job worker for further processing and Y company can get back the processed raw material without payment of duty from X. For this purpose Y company has to follw the procedure mandated by Notification No. 214/86.

Situation: -II

If the process undertaken by X company as job worker does not amount to manufacture, then X company has to pay service tax on the gross value charged by X company. This service tax paid by X company can be availed as input service credit by Y company.

However, as per Sl. No. 30 (c) of Notification No. 25/2012-ST dated 20.6.2012 (with effect from 1.7.2012) as amended "carrying out an intermediate production process as job work (by X company) in relation to any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer (Y company).

[KASTURI SETHI]

Agree with Sh. Rajagopalan Ranganathan, Sir.