Job work in manufacturers premises and service tax, Service Tax

[Narendra Soni]

Dear Sir,

We are working for two cases, both the cases are independed to each other,kindly suggest seperetly for both the cases:

X is a manufacturer of Polypropelene Bags/Flexible intermediate bulk bags (FIBC) products.Process:- Pp Granaules>PP Yarn>PP Fabric>Cutting/stiching and finaly FIBC &PP Bags produced.

1. Labour provided by contractor for production, Manufacturer pay at piece rate or lumptiom for the labour employed by the contractor.

Is this service provided by the contractors labour fall under RCM as manpower supply and is service tax applicable.

Is this work fall under job work.

Can the board circular No.190/9/2015-service tax dtd.15.12.2015 is applicable.

2.. He makes an agreement with some job workers where by X will give his machinery on lease/Rent to such job workers (M/C installed in factory of X) the job workers will bring his labours and do some intermediate work in the factory of X on the RM/product provided by X (m/cs are installed in manufactures factory "X") and return the processed products to X and X will finally export the said products under bond/LUT/on payment of duty .Contractor (Job worker) will charge rate per piece from X.Labour will work under control & supervision of his contractor only.

Kindly suggest Is service tax is applicable in this job work process in the hand of X or in the hand of contractor.Please provide reference of relevant notification circular in support.

Posts / Replies

[Ganeshan Kalyani]

Sir, the reply to your first query is as follows:

If the labour contractor is an individual, HUF, firm, AOI, BOI and the manufacturer is company then the service so provided by the contractor of supplying manpower falls under reverse charge mechanism and service tax become payable to be paid by the manufacturer being recipient of service.

Further the Circular mentioned by you is applicable for the service received by the apparel exporters in relation to fabrication of garments. Please check if you were to quote some other Circular. Thanks.

[Ganeshan Kalyani]

Sir, my views on your second query is as follows:

If the process undertaken by the processor amounts to manufacture then Central Excise duty becomes applicable and If that is only intermediate goods and not final goods then service tax becomes applicable on job work charges. But as you have mentioned in your qurry that the processor i.e. the Job worker is receiving raw material from principal manufacturer Mr. X and manufactures it into final product and Mr X exports it. Therefore it is assumed that manufacturing process has been undertaken and thus excise duty is applicable. The duty can be paid by either Job worker or by the manufacturer.

Further as you have mentioned that the machinery is given to job worker for carrying out manufacturing activity, then this will be covered under renting of immovable property service and service tax will become payable by the processor.

This is my views. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, Renting of machinery is covered under the erstwhile category of "Right to Use of Tangible Goods Sevices". Moreover, this is not a simple query. So many factors/aspects are involved. Needs to go through again.

[Ganeshan Kalyani]

Sri Kasturi Sir, I full agree with your views and I agree that my views will be full proof only if had gone through the Agreement thoroughly. The contract arrangement is essential to decide or arrive at the liability of service tax or excise duty. Thanks.

[Narendra Soni]

Dear Ganeshan Ji,

In first query, payment term is "piece rate/ lump sum" and not per man/per hr/per day, then how it will be manpower supply, Why it could not be job work.

Its ok that the referred circular is meant for apparel industry only, but like in garment industry, in our industry there is stitching work of Bags.

Kindly suggest.

In second query, Rm/Semi processed material is given by manufacturer to job worker, the job worker further carried our some process and return to manufacturer,the manufacturer may further work on the processed goods or export as it.

Job work is carried out in the factory of manufacturer on the machines installed and belongs to manufacturer but leased to job worker.

In both the cases, agreements made where in payment term is piece rate and labour will work under supervision & control of job worker only.

Now please suggest.

[MUKUND THAKKAR]

In first query, payment term is "piece rate/ lump sum" and not per man/per hr/per day, then how it will be manpower supply, Why it could not be job work.

Job work is defined in Notification No. 214/86 dated 25.03.1986

Explanation I. - For the purposes of this notification, the expression "job work" means processing or working upon of raw materials 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 the aforesaid process.

we can not consider our activity on logical basis we follow the rules, your activity is not job work as oer explanation. so suggested by Ganeshan Kalyan sir is correct.

Its ok that the referred circular is meant for apparel industry only, but like in garment industry, in our industry there is stitching work of Bags

your question it self mention answer your query, Stitching activity is part of your final product.only

In second query, Rm/Semi processed material is given by manufacturer to job worker, the job worker further carried our some process and return to manufacturer,the manufacturer may further work on the processed goods or export as it.

Job work is carried out in the factory of manufacturer on the machines installed and belongs to manufacturer but leased to job worker.

it matter of hire labour along with the contractor worker but not job work activity.

please refer view given by Ganeshan KalyanJi & KASTURI SETHIJI is correct.

[KASTURI SETHI]

Sh.Soni Ji,

As opined by Sh.Mukund Thakkar, Sir it is a case of hired labour, so it is neither covered under manpower supply nor under Works Contract Service. No RCM is applicable. No abatement is allowed. Service Tax will be paid by the Contractor after collecting it from Service Receiver. Now it falls under the category of "Other Than Negative List". This is in addition to the service of "Right to Use of Tangible Goods Service".

[omkar jewellers jewellers]

Rollback excise on jewellers

[Ganeshan Kalyani]

Omkar Jewellers, Sir request you to raise your question in separate new issue id. This is because your query can be dealt by the experts separately and specially.