Service Tax on Labour contractors

This query is : Resolved

Manish (Querist)
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02 August 2009 We are manufacturing co regd. under excise and producing excisable goods. We have engaged labour contractors in our factory for job work process of finished goods. They execute the work of Fabrication and Galvanizing in our factory. The job process is amount to manufacture. Contractors issues their bill of Job work on weight basis per month and they are not charging or paying service tax as the job work process of excisable goods is amount to manufacture and excise is leviable on such process which is to be paid on clearance of such finished goods processed by Contractors from factory.

My query is whether such labour contractors are covered under ambit of service tax and are liabile to pay service tax or not? If yes, under which service category it should falls?

Shyam Lal Naik

Shyam Lal Naik (Expert)
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02 August 2009 You have rightly answered your query.

The contractor is outside the net, as the process amounts to manufacture and also reasults in manufacture of excisable goods.

CA Suresh Choudhary

CA Suresh Choudhary (Expert)
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02 August 2009 Agree with Shyamlal

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Dilip Darji

Dilip Darji (Expert)
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03 August 2009 Mr.Manish.
I suppose that you are availing CENVAT credit on all your raw material and also paying central excise duty on your finished goods.
If it is so, you can very well avail CENVAT credit of Inputs, which you intent to send to the job-worker (who is located within your premises). You can send materail to Job worker under job-work challan under Rule 4 (5)(a) (old rule 57 A) and can bring back processsed goods within 180 days. Since the process amount to manufacture, Job worker is not required to pay Service Tax in terms of Noti.No.8/2005-ST. On receipt of processed goods from Job Worker, you will undertake further process in your factory and manufacture Finished Goods, on which you shall pay central excise duty.
You will have to inform your central excise authority, intimating the premises allocated to the job-wolker, in your premises and remove the said premises from your approved ground plan. Job-Worker is also required to inform Central Excise Authority, accordingly.
DILIP DARJI