Job Work - Cenvat Credit - Ready Reckoner [OLD] - Cenvat Credit

Chapter 9 Job Work Statutory Definition: In Cenvat Credit Rules, 2004 the term Job Work has been referred at various places. For this chapter we are analyzing these terms as: Rule 2(n) - Meaning of Job Work Rule 3(1) - Cenvat Credit is available on inputs used by the Job Worker Rule 4(5) - Removal of input and capital goods for Job Work 1 Meaning of Job Work - Rule 2(n) job work means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression job worker shall be construed accordingly. The meaning of Job Work is very wide and includes the followings: 1 Processing or working upon goods partly 2 Processing or working upon goods wholly 3 Any operation which is essential for the above. However, this definition does not include the job work in relation to Capital Goods and the scope of work included in the rule 4(5) of the Rules. The scope of Job Work for the purpose of Rule 4(5) is very wide than defined as above. 2 Scope of Job Work for the purpose of Rule 4(5) i.e. removal of goods for job work: [commonly this provision is known as 57F(4) - an old rule] Input and Capital Goods both are covered Can be sent as such or after being partially processed Can be sent for processing, testing, repair, re-conditioning or Can be sent for the manufacture of intermediate goods necessary for the manufacture of final products or Can be sent for any other purpose, Capital Goods can be sent to job worker for manufacturing of finished goods. Job worker shall be any person who performs any of the process as described above. It may be the another factory of the same manufacturer, independent vendor, government agency etc. Input or Capital goods shall be sent on proper document like challans or memos or any other document. Proper record (register) must be kept for such an activity. This facility is available to both i.e. Manufacturer as well as Output service provider. This provision is applicable only for the input or capital goods on which Cenvat Credit has been availed. Input or Cenvat Credit on which no Cenvat Credit has been availed, the provision of rule 4(5) does not apply. In case of Inputs which has been sent on job work must be returned within 180 days and in case of capital goods, goods must be returned with in two years from the date of sending. There is no provision of extension of the period of 180 days / 2 years in rule 4(5) If Inputs or Capital Goods are not received back within 180 days / 2 years, the amount of Cenvat Credit availed on such inputs or capital goods needs to be reversed or to be paid. In case job work is not completed within in 180 days / 2 years , It is advisable to bring back the material and send it again for job work. It is mandatory requirement. If goods are returned back after 180 days / 2 years and Cenvat Credit has been reversed as above, it is allowed to take the credit again on its own. For this purpose no need to obtain permission form the department, but proper records must be kept. Special provision for Jigs, fixtures, moulds and dies The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to another manufacturer for the production of goods or a job worker for the production of goods on his behalf and according to his specifications. The period of limitation of 180 days / 2 years is not applicable in jigs, fixtures, moulds and dies which is sent by a manufacturer of finished goods. Other provisions related to Job Work and Cenvat Credit 1 Declaration to filed by the manufacturer A manufacturer who is sending raw material or semi finished goods to the job worker should file a declaration in terms of notification no. 214/86 CE , although practically followed rarely and even insisted by the department only occasionally. This notification No.214/86- CE is applicable only to manufacturer and not to service provider. 2 Inputs can be sent directly to the job worker Some time a manufacturer wants to send the raw material directly at the premises of the Job Worker and than receive the processed material to his factory. Since the manufacturer is liable to pay Excise duty and Job Worker availing exemption under notification no. 214/86 and remove the processed goods without payment of duty. In such circumstances, in accordance with the Rule 3(1) of the CC Rules , the manufacturer is allowed to avail Cenvat Credit on the raw material received by the Job Worker on his behalf. However, such manufacturer shall be allowed to avail the Cenvat Credit .on material first received by the Job Worker, only when manufacturer receives such material in his premises only. Rule 3(1) of the CC rules applies only to inputs and input services and not on the capital goods. Thus capital goods have to be brought into the factory or manufactured in the factory and then despatched to job worker. 3 Sending material from one job worker to another job worker There is no specific permission or prohibition in the Cenvat Credit rules covering the aspect that one job worker can send the goods to another job worker. Considering the prevailing market practice and specific inclusion in the old rules, it is allowed and job worker can send the goods to another job worker. In such circumstances, it is highly advisable that the job worker must maintain own records and challans in support of his activities. 4 Own material used by the job worker It is very interesting and complex issue. It can be discussed into two parts: (i) Job worker is doing 100% job work When job worker is doing only job work activities, what ever material he is using in the process, he should provide the evidences of those to the manufacturer so that the manufacturer can avail Cenvat Credit on the goods procured and utilized by the job worker in terms of rule 3(1) . (ii) Job worker is manufacturing its own goods as well as doing job work When job worker is manufacturing its own goods along-with the job worker activity on the goods received under rule 4(5), he may have further three options: - Keep the separate records for job work and follow the same procedure as discussed above, as if he is doing only job working activity. - Pay excise duty on the value of inputs used by him including his service charges but not including the value of material supplied by the manufacturer on which job work has been done. This view has been held in International Auto Ltd. 2005 (3) TMI 132 - SUPREME COURT OF INDIA . - Avail the Cenvat credit on the inputs used in the process of job work. Remove the goods received on job work after processing without payment of excise duty. Utilize Cenvat Credit to pay excise duty on other finished goods cleared by him. Tribunal has upheld this procedure since the goods removed after job work under Cenvat Provision 4(5) are neither exempted goods nor they are chargeable to NIL rate of duty - in Sterlite Industries v. CCE 2004 (12) TMI 108 - CESTAT, MUMBAI 5 Direct selling of finished goods from the premises of Job Worker The manufacturer who has sent the material / inputs has to obtain permission from the AC / DC for selling the finished goods directly from the premises of the Job Worker. Before granting such permission, AC / DC may impose conditions in the interest of revenue including the manner in which duty, if leviable, is to be paid. The permission is valid the financial year for which it has been obtained. 6 Scrap / waste generated at the end of job worker Scrap / waste generated at the end of job worker or say during the process of job work, must be returned back to the supplier of material for job work. If the manufacturer / raw material supplier does not wish to bring back scrap / waste in to his factory, he must obtain prior permission form the AC / DC for selling the same from the premises of the Job worker - rule 4(6) 7 Responsibility is on Manufacturer / Service provider and not of the Job Worker Under the Cenvat Credit provisions if there is any misuse or breach of the provisions or conditions or procedures, the manufacturer cum material supplier shall be responsible for such misuse or breach or the provisions of conditions or procedures.