Job Work under Central Excise - Central Excise Practice Manual (OLD) - Central Excise

JOB WORK Job work means supplying the material by a customer to a job worker who carries out certain processes such as machining, drilling, welding, printing, dyeing etc. and returns the material to the customer after carrying out the processes who will than either use it for further manufacture or clear the product as received from the job worker. Duty liability of goods manufactured under job work Since duty liability arises only on fully manufactured goods, therefore if no 'manufacture' of goods takes place during job work i.e. if goods are not marketable or semi-finished goods are produced or if only repairing or reconditioning is done, no duty liability arises. On the other side, if job work amounts to manufacture, duty liability will arise and the fact who has supplied the raw material is immaterial. Now the question arises, who will bear the burden of duty liability in case of job-work? Normally, duty liability is of the actual manufacturer (Duty liability is of the job worker as he is the manufacturer) and not of the raw material supplier. However, if raw-material or semi-finished components are sent for job-work under Cenvat provisions or under notification no.214/86-CE no excise duty will be payable by the job-worker, duty liability is of manufacturer who is sending his inputs/ components for job work. In other cases, where job work results in 'manufacture' of a product, duty liability will be of job-worker. Sometimes, the job-worker would like to pay duty, even if raw-material supplier has sent the goods under Cenvat provisions, he should do so if - (i) he has put his own inputs, or (ii) he has unutilized Cenvat credit. In such case, either of them can avail Cenvat credit on inputs sent for job work, i.e. if job worker has not availed Cenvat credit the raw-material supplier can avail the Cenvat credit. Which inputs can be sent for job work? All inputs can be send for job work other than, high speed diesel oil, Light Diesel Oil, polyester filament yarn and motor spirit commonly known as petrol. The job worker can manufacture any final product included in Central Excise Tariff. Use of goods after job-work After job work, the goods can - · either, be returned to person who had send it for job work, who will either use them for further manufacture or clear the product as received from the job worker, or · dispatched them directly from the place of job worker with permission of AC/ DC. Goods produced under job work can be cleared either as such or after further processing - a) on paying duty for home consumption, or b) under bond for export without payment of duty, or c) to SEZ/ FTZ, 100% EOU, EHTP/ STP unit on which duty exemption is available under notifications, or d) to United Nations or International Organizations or a project funded by them on which duty exemption is available under notifications, or e) by a manufacturer of dutiable and exempted final products, after discharging his obligation in respect of said goods under rule 6 of the CENVAT Credit Rules, 2002. Job work under Notification No. 214/ 86 Notification No. 214/ 86 provides for exemption from job work. Notification provides that 'Job worker' is exempt from all types of duties i.e. basic duty, special duty, additional duty (goods for special importance) and NCCD. The duty liability is of the supplier of raw material. The exemption contained in this notification shall be applicable to the goods, in respect of which the supplier of the raw materials or semi-finished goods gives an undertaking to the AC/ DC of central excise having jurisdiction over the factory of the job worker that after the job work, · the material returned by the job worker will either be use by the supplier for further manufacture or clear the product as received from the job worker on the basis as mentioned in above paragraph from points (a) to (e), and · give evidence that the goods have been used or removed in the manner prescribed above, and · he (supplier of raw material) discharges the duty liability on the final product. Other points to be noted under this notification are: - · The exemption is available even if job worker manufactures an intermediate product. · Eligibility of inputs to be sent and final products to be manufacture are as discussed above. · Exemption under notification is not available, if no duty liability arises on final product. · Waste and scrap arising during job-work is not required to be returned to raw material supplier as new Cenvat credit provisions make no provision of returning the scrap to the raw material supplier. Thus, job-worker is liable to pay duty on scrap as he is the 'manufacturer' of the scrap. · Trader cannot send goods for job-work under this notification. Following are eligible to send materials for job-work - - Manufacturer - Exporter - Units in SEZ, EOU, EHTP, STP - Units supplying final products to UN and international organization for official use or to project funded by them. Other notifications under job work are as follows: - Job work under Notification no. 83/94 and Notification no. 84/94 - These notifications are applicable to SSI units having turnover below 150lakhs, who send the inputs for job-work . [For details see chapter no.7D 'JOB WORK AND SSI'] Job work under Notification no. 70/92 This notification provides exemption to goods manufactured in a factory as a job work and used by the specified undertakings in the manufacture of goods for supply to Ministry of Defence. The exemption contained in this notification shall be applicable to the goods, in respect of which the supplier of the raw materials gives an undertaking to the AC/ DC of central excise having jurisdiction over the factory of the job worker that after the job work - · Such goods shall be used in or in relation to the manufacture of final products in his factory and give evidence that the goods have been so used. Goods manufactured by job-worker does not includes the following - machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under section 4 of the Central Excises Act, 1944 (1 of 1944); Cylinders for packaging gases; bags or sacks made out of fabric (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics; or plywood for tea chests. · The final product so produced shall be supplied to the Ministry of Defence for official purposes and the said manufacturer shall produce evidence to the effect, · The manufacturer discharges the duty liability on the final product. Specified undertakings that manufactures final product and send them to the Ministry of Defence are as follows - 1. Hindustan Aeronautics Ltd 2. Bharat Electronics Ltd 3. Bharat Dynamics Ltd 4. National Instruments Ltd., Calcutta 5. National Aerospace Laboratories 6. Indian Ordnance Factories belonging to the Central Government 7. Mishra Dhatu Nigam 8. Bharat Earth Movers Limited Valuation for job work - In case, where raw materials sent for job-work are not sent under Cenvat provisions or under any of the above notifications and if such job-work results in 'manufacture' of a product, duty liability will be of job worker. In such a situation assessable value will be calculated on the basis of cost of raw material plus job charges including processing expenses and the processor's (i.e. job worker's) profit. Thus, in case of job work, assessable will be the value at which the job worker makes the final product and not the price at which raw material supplier sells the goods. Valuation will be done on the basis of Rule 11 (states that valuation can be done on reasonable basis consistent with provisions of section 4 and valuation Rules) read with Rule 6 (states that additional consideration should be added). Even where the job worker manufactures same product partly on job work basis and partly on own account, valuation will be done on the above basis only. However, if material was supplied under Cenvat provisions, job worker is not required to add value of material supplied to him under Cenvat provisions for job work Also, if the product manufactured on job work basis is covered under MRP provisions, duty in such a case will be payable on the basis of section 4A and not on the basis of the material cost plus job work charges. The following are includible in 'assessable value' - 1. Job worker's expenses and profit are includible. 2. Cost incurred by raw material supplier 'in supplying raw material' to the job worker should be included. 3. Material cost includes freight, insurance, interest charges etc incurred in connection with the raw material. 4. Material cost should be inclusive of wastage if any incurred during processing as it is incurred for producing the final product. 5. Proportionate cost of patterns/ dies/ masters/ moulds supplied by buyer will be included as they are treated as additional consideration. The following are not includible in 'assessable value' - 1. Trader's or raw material supplier's profit and expenses (like advertisement, publicity, overheads) are not includible. 2. No further notional profit should be included, since job charges are already inclusive of the profit of the job worker. 3. Raw material cost should be exclusive of duty paid on raw material by the raw material supplier as this will be available as Cenvat credit while paying duty on finished goods. 4. Value of brand name will not be includible as brand name is undertaken by the assessee and not by the job-worker. 5. Cost of technical known-how supplied by the raw material supplier is not includible. If the raw material supplier and job worker are 'related person' as defined in section 4, then valuation will be on the basis of price at which the raw material supplier sales the goods to unrelated buyer (i.e. the ultimate consumer).