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Job Worker is not liable to Service Tax under BAS

RS Sharma AdvocateRS Sharma Advocate

Job Worker is not liable to service tax under notified taxable service of “Business Auxiliary Service” in both the situations when the activity amounts to manufacture and also when the activity does not amount to manufacture.

“Business Auxiliary Service” has been defined under the Finance Act 1994 as amended as under:

(19) “business auxiliary service” means any service in relation to, —

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;

(v) production or processing of goods for, or on behalf of, the client;

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,

and includes services as a commission agent, but does not include any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, —

(a) ”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

(iv) undertakes any activities relating to such sale or purchase of such goods or services;

Thus in view of foregoing statutory provision; “business auxiliary service” means any service in relation to   production or processing of goods for, or on behalf of, the client but does not include any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

Thus service tax is payable if the activity does not amount to manufacture.

Further, no service tax is payable when the activity amounts to manufacture under Central Excise law.

The attention is now invited to Service Tax Notification No.8/2005 as amended vide Notification No. 19/2005 which exempts production of goods or processing of goods when excise duty is payable. 

Notification No. 8/2005-Service Tax dated 1st March 2005

“G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of production of goods on behalf of the client referred in sub-clause (v) of clause (19) of section 65 of the said Finance Act, from the whole of service tax leviable thereon under section 66 of the said Finance Act:

Provided that the said exemption shall apply only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client and goods so produced are returned back to the said client for use in or in relation to manufacture of any other goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), on which appropriate duty of excise is payable.

Expalantion.- For the purposes of this notification,-

(i) the expression “production of goods” means working upon raw materials or semi-finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);

(ii) “appropriate duty of excise” shall not include ‘Nil’ rate of duty or duty of excise wholly exempt.

[F. No. 334/1/2005-TRU]”

Amendment vide Notification No.19/2005

In the said notification,- 
(i)

for the words “production of goods on behalf of the client”, the words “production or processing of goods for, or on behalf of, the client” shall be substituted;

(ii)

in the proviso, for the words “produced”, occurring at two places, the words “produced or processed” shall be substituted;

(iii)

in the Explanation, in clause (i),-

 

(a)

for the words ‘ “production of goods” ’, the words ‘ “production or processing of goods” ’ shall be substituted;

 

(b)

for the words “production” occurring at two places, the words “production or processing” shall be substituted.

The attention is specifically invited to Explanation to Notification No. 8/2005 which provides as under: 

“Expalantion.- For the purposes of this notification,-

(i) the expression “production or processing of goods” means working upon raw materials or semi-finished goods so as to complete part or whole of production or processing , subject to the condition that such production or processing does not amount to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);” 

Therefore, those process which does not amount to manufacture under excise; are exempt from service tax. Thus job worker is not liable to pay service tax  and payment of service tax by job worker is not warranted when the conditions of Notification No. 8/2005 as amended vide Notification No. 19/2005 are fulfilled. 

(Writer is an Advocate based in Delhi and is advising several MNCs, PSUs & Indian Corporates on service tax, central excise, customs and allied matters. He can be mailed at rssharma@gmail.com ).  

 

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