Cenvat Credit of Service Tax paid on Job Work charges by job worker - Service Tax - Trade Notice No. 07/2016

OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, GURGAON I, PLOT NO. 36 37, OPPOSITE MEDANTA MEDICITY, SECTOR 32, GURGAON 122001 C. No. IV(16)/HQ Tech./GGN-I/TN PN/7/2016 Dated: Nov. 2016 Trade Notice No. 07/2016 Subject : Cenvat Credit of Service Tax paid on Job Work charges by job worker reg. Representations have been received from the Gurgaon Industrial Association that many ancillary units are carrying out the activities of painting, powder coating and electroplating of parts/components on job work basis for the principal manufacturers. They are of the understanding that the services provided by them are intermediate production processes not amounting to manufacture and are liable to service tax. The field officers are issuing show cause notices on the grounds that the activity of carrying out an intermediate production process as job work in relation to any goods, on which appropriate duty is payable by the principal manufacturer has been exempted from payment of service tax under Notification No. 25/2012-ST dated 20.06.2012, and it is mandatory for the job worker to claim said exemption and accordingly they can not charge service tax on the job work charges. In this regard, the Hon ble High Court of Karnataka in the case of M/s Federal Mogul TPR India Ltd (2015 TIOL1805 HC-KAR-ST) (which has been accepted by the Department) has held that the words shall not pay enumerated in the said provision (section 5A (1A) of the Central Excise Act) specifically denotes that it is the mandatory requirement on the manufacturer of such excisable goods not to pay the duty of excise on such goods in respect of which an exemption under Section 5A(1A) has been granted absolutely. Such a mandatory requirement of not to pay the duty of excise on goods exempted under Sub-section (1) of Section 5(A) is not found in Section 93 of the Service Tax Act. Section 83 of the Service Tax Act provides for application of certain provisions of Central Excise Act, 1944 in relation to service tax under Finance Act, 1994. Absence of Section 5A of Central Excise Act, in Section 83 of the Finance Act, 1993 indicates that the provisions of Section 5A of Central Excise Act is not applicable to the Finance Act, 1944 . In view of the above judgment of the Hon ble High Court of Karnataka, it is clear that the Stipulation in Section 5A of Central Excise Act, 1944 applies only on excisable goods in respect of excise duty and cannot be applied for Service Tax. In terms of notification no.214/86-CE dated 25.03.1986, so long as the principal manufacturer is clearing the goods on payment of Central Excise duty then exemption of service tax would be available to the job worker and this exemption notification is mandatory and the service tax is exempted on such job works. However, if in terms of notification no.25/2012-ST dated 20.06.2012, service tax is being charged on an intermediate process (not amounting to manufacture) by such a job worker, credit of such service tax would be available to the principal manufacturer. All the Trade Associations are requested to bring the contents of this Trade Notice to the attention of their members, the trade, industry and everyone concerned with the said Scheme. (Yogendra Garg) Commissioner OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, GURGAON-I, PLOT NO-36 37, SECTOR-32, GURGAON, HARYANA C.No. IV(16) HQ Tech/GGN-I/S.Tax Credit/20/2016 Date: 23.12.2016 Sir, Subject :Representation with respect to clarification on applicability of Central Excise Duty and Service Tax on Job Work of painting, power coating, electroplating and similar other processes reg. Please refer to your office letter C. No. CCU(DZ)CX/Tech-1/34/2016-17 dated 10.11.2016 and 13.12.2016 on the above subject. In this regard, it is intimated that representations were received from the Gurgaon Industrial Association in this Commissionerate that many ancillary units are carrying out the activities of painting, powder coating and electroplating of parts/components on job work basis for the principal manufacturers. They are of the understanding that the services provided by them are intermediate production processes not amounting to manufacture and are liable to service tax. The field officers are issuing show cause notices o n the grounds that the activity of carrying out an intermediate production process as job work in relation to any goods, on which appropriate duty is payable by the principal manufacturer has been exempted from payment of service tax under Notification No. 25/2012-ST dated 20.06.2012, and it is mandatory for the job worker to claim said exemption and accordingly they can t charge service tax on the job work charges. It has been clarified that so as the principal manufacturer is clearing the goods on payment of Central Excise duty, then exemption of service tax would be available to the job worker. In case service tax is being charged on an intermediate process (not amounting to manufacture) by such a job worker, credit of such service tax would be available to the principal manufacturer. Further, Trade Notice No. 13/2016 dated 21.11.2016 has also been issued by this Commissionerate on the issue. Copy of the same enclosed for kind perusal. This issues with the approval of Commissioner. Yours fathfully, (R R Bahl) Joint Commissioner