We manufacture table fan parts and do job work for an electrical appliances company. Most of the inputs, components etc. are supplied by this client. We raise the invoice on the client for the work done, with job work charges that include labour component, consumables and service charges. For the goods manufactured by us, the principal manufacturer pays the excise duty on our behalf. Do we need to separately pay service tax on this transaction?
Production or processing of goods for or on behalf of the client is a taxable service liable to service tax under the category of Business Auxiliary Services (BAS). Further, an exemption from service tax payment has been provided in cases where such production or processing includes an activity that amounts to ?manufacture? within the meaning of Section 2(f) of the Central Excise Act, 1944 and on which excise duty has been paid.
Further, an excise department circular has clarified that the said exemption is available only in cases where the raw material is provided by the principal manufacturer and the goods so ?manufactured? are returned back to the principal manufacturer to be used by him in the manufacture of excisable goods.
We understand that in your case, the parts of table fan manufactured by you are sent back to the principal manufacturer for use in the manufacture of table fans by him and excise duty is deposited on the same by the principal manufacturer. So, you should not be required to pay a service tax on the job work carried out by you.
Cenvat credit on material stored off-site
We manufacture aircraft refuellers and hydrant dispensers at our plant in Faridabad, Haryana. We import raw materials, parts and components for the same. Due to a paucity of space in our plant, we are thinking of storing the raw material in a warehouse which is not registered under the Central Excise. The goods will be moved to the plant when required. Please let us know, if the same is allowed under the excise laws without impacting the credit admissibility?
As per Rule 8 of the Cenvat Credit Rules, 2004 (the Credit Rules), the jurisdictional deputy/assistant commissioner may allow the storage of inputs outside the factory premises depending upon the nature of the goods or space availability in the factory. Accordingly, you may store the inputs in a warehouse after obtaining necessary permission.
As regards admissibility of cenvat credit, generally, cenvat credit is required to be reversed in cases where inputs have been removed from the factory. However, in cases where the inputs have been removed from the factory under Rule 8 after obtaining prior permission of the jurisdictional deputy/assistant commissioner, in our view, cenvat credit is not required to be reversed, subject to fulfillment of conditions and limitations as may be specified by the officer.
Liability on fake Form C
We are a registered VAT dealer in Delhi trading in household goods. We had sold goods to a company in Gurgaon, Haryana, at a concessional CST rate of 2% against Form C. At the time of assessment, we had been asked to submit the copy of the registration certificate of the buyer. Upon submission of its registration certificate, it came to light that the buyer?s CST registration was cancelled by the Haryana VAT authorities. We have now received a notice from the Delhi VAT authorities asking us to pay the differential CST. Please clarify whether we need to pay the differential amount?
As per the CST Act, a registered dealer can purchase goods from another registered dealer at a concessional rate of CST, ie. 2%, if the goods are purchased for specified purposes such as resale, use in manufacture, etc. and the purchasing dealer issues a statutory declaration in Form C to the selling dealer. In case the statutory Form C is not submitted, CST would be chargeable at the VAT rate applicable on such goods in the state from where the goods are sold.
In this regard, it is well settled law that the selling dealer can sell goods at the concessional CST rate as long as the declaration in statutory Form C is received from the buying dealer. While the selling dealer is required to ensure that the statutory form on its face is valid and authentic, he is not required to investigate whether the purchasing dealer has a valid registration or has procured the statutory form fraudulently, etc.
In your case, if the form issued by the customer was on the face of the document, valid and authentic, and there was no information available in the public domain regarding the cancellation of its CST registration, you have a valid case to argue that you were under the bona fide belief that the buyer was a registered dealer. Thus, you should not be liable to pay differential CST in respect of this sale.
The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to fesmes@gmail.com
