Exemption - Services rendered to SEZ, Service Tax

[sunil mehta]

Dear Sir, A)A pvt. ltd.co.gets contract from another pub.ltd.co.(developer of 'Township' to manf. & supply 'Hollow Cement Blocks'at their Township Planning' site.They will supply the foll: i)Cement ii)construction water iii)construction electricity.iv)space at their township site B)The contractor will have to make provision of the foll:on itsw own. i)sand ii)aggregate iii)labour iv)dumper/tractor for shifting cement iv)Loading/unloading of cement etc. C)The contractor purchases materials (except cement)and sublets the work to 4 diff.sub-contractors for processing/conversion the materials/cement in to "Hollow Blocks".(i.e. application of labour on materials)The machines are supplied by contractor to sub-contractors. D)CONTRAT PRICE-The main co. will pay contractor for each piece manfuctured I(ncld.labour+sand+aggregate+profit margin) Query: 1)whether manf./prodn.of 'HOLLOW BLOCKS'amt.to "manufacture" and thus escape ser.tax under Bus.Aux.?i.e whether hollow blocks of cement/sand come under excise tariff sch.? 2)If it is taxable then how the contract price will be bifurcated for finding value of taxable services ? 3)whether ser.tax is applicable to sub-cont.who does labour work only for contractor?whether ser.tax is applicable on pure labour work? 4)What will be the situation if whole work is carried out by contractor & sub-cont. in premises of SEZ for township development?i.e work is carried for SEZ developer in SEZ premises. 5)whether sub-contractor will be exempted if main services of contractor is exempted because of SEZ? Thanking you, sunil mehta

Posts / Replies

[Surender Gupta]

This query involves various issues and it is very difficult to discuss all the issues here. However the basic issue is whether the fabrication of Hollow Blocks is Manufacture or not to decide the liability of service tax is being discussed hereinafter. Hollow blocks in the query is a manufacturing activity. If the sub-contractors are not independent and working as a hired labour directly or indirectly than the actual manufacturer shall be the contractor only. Otherwise, sub contractor may be treated as the manufacturer. Apparently, since this activity is a manufacturing activity and resulting product is liable to excise duty which is falling under chapter 68, the same can not be liable to service tax under business auxiliary service.