Dare Devil Adventure Of Job Work

[Submitted by Chandrashekara R.,
CA student,
Bangalore, Karnataka]

January 8, 2009

Introduction

The introduction of job work provisions even though quite early in 1973 under Rule 56B, it was too later from the introduction of central excise act 1944. The provision had been introduced due to the fact that In order to tap those loop holes from the point of revenue where most of the goods manufactured under job work were been escaping the liability, in the form of clandestine removals.

Relevant and important statutory provisions

Job work is basically understood as an activity of labour work, piece work and subcontracting and so on. It is interesting to note that even though the concept of job work is defined under central excise, it has not defined the term who is the “job worker” which is due to they don’t want to limit its scope of application form the point of revenue implications. As per definition 2(n) of central excise the “job work” is an inclusive definition and it defines the same as job work means processing or working upon a raw material or semi fished 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 above said process and the expression job worker shall be construed accordingly.

It must not be forgone that the activity carried on by the job worker may amount to manufacture or, incidental or auxiliary to manufacture, hence the same shall be covered under one or more law e.g. central excise, service tax or some other statute. Hence the taxability would depend upon the manner of work been carried on.

The tricky issue which arises in the case of job work is in deciding or fixing the responsibility of who will be the “manufacturer “, The conflict had emerged due to the definition section 2(f) of clause (iii) of central excise act 1944, where it was defined that manufacturer shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account, the sentence underlined above focuses a light on the aspect of irrespective of the ownership of material, the job worker himself shall be the manufacture and shall be construed accordingly.

Job work vs. manufacture

In a situation where the process carried down by the job worker amounts to manufacture the job worker shall be liable for payment of the excise duty, however he shall be eligible to claim the exemption under notification 214/86 by following the conditions specified. Where the supplier of the raw material or finished goods must file an undertaking to the Assistant commissioner of central excise having jurisdiction over the factory and said supplier shall undertake the responsibility of discharging the liability in respect of central excise duty.

When the process carried down by the job worker does not amount to manufacture under section 2(f) of Central Excise Act 1944, the same shall be coverable under service tax as clarified in circular No. B1/6/05 TRU dated 27/07/2005 under the category of BAS where the clause (v) specifies that the production or processing of the goods for or on behalf of client, hence, the job worker shall be subjected to service tax w.e.f 16/06/05.

However the job worker would not be liable under Service Tax if the process carried on by him amounts to manufacture, the same shall be excluded from BAS. It’s immaterial whether the excise duty has been paid or not. As it is clarified in the exemption notification no 8/2005 dated 1/3/05 if the job worker sends back the goods to the principal supplier who in turn uses it in manufacture of excisable goods or in relation to manufacture of excisable goods, upon which excise duty is payable by the principal. From the above notification it can be considered that basically goods sent under Cenvat provisions were exempt from Service Tax.

Options available to the job worker

From the cenvat viewpoint, the principal who is sending the goods to job work for further processing or any other activity, he shall have the following options at his hand.

1. If the principal is availing the cenvat benefit he should follow the procedures prescribed under Rule 4(5)(a) of cenvat credit rules, where it had been specified that the goods sent should be received back to the supplier within 180 days, if the goods are not returned within the stipulated period cenvat on the same shall be reversed and the credit on the same can availed back on the date of receipt of the goods back to the principal’s factory.
    
2. If the principal is in the process of manufacturing exempted goods and had not availed the cenvat benefit, then the principal manufacturer can send the goods job worker under Rule 16A central excise rules or Notification No 214/86 of Central Excise by obtaining the permission of the commissioner, or the principal can send the goods by following appropriate procedures as he may deem fit from the point of view of internal control on the same. Since, so far there is no prescribed procedure under central excise in relation to sending the exempted goods for job work, the option is left with the principal at their discretion.

Valuation under job work

As discussed above, excise duty will not be payable by the job worker if the benefit under Notification No 214/86 is claimed, however on the other hand if the process amounts to manufacture and above exemption had not been claimed, the duty shall be discharged by the job worker as specified under rule 10A of the valuation rules, provided,

• Where the goods are manufactured by job worker on behalf of the principal.
• Where the goods are directly removed from the job worker premises to customer or to supplier depot, from where the goods will be ultimately sold.
• And no further process had been carried on by the principal.
• Price is the sole consideration.

Duty shall be payable by the job worker on the final value at which the goods will be removed from depot or ware house or directly from job worker premises to the final consumer.

As we have discussed so far above the provisions of the job work under Central Excise and Service Tax, the provisions introduced under both of the statute acting as a benefit from the point of view of duty liability (liability would fall on the principal supplier normally) and better internal control on its activities undertaken. Provisions of job work is not a hurdle, it is acting as a tool to amplify.

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