CA Kamlesh Singh Chauhan
Now-a-days, real estate industry is in boom phase and flat/apartment culture is picking pace due to economy, comfort, security and liquidity. Therefore, construction of apartment/flats is hot-most segment and construction industry is adopting every new relevant and viable technology. Most relevant example of latest technology is use of “Ready Mix Concrete” in place of “Concrete Mix”. “Concrete Mix” [ISI Standard: 456-1978] is mixture of cement, sand, gitti and water prepared spontaneously either manually or by using mixing machines at site while “Ready Mix Concrete” [ISI Standard: 4926-1976] as the mixture of cement, sand, gitti, chemical and water made by a defined process defined in Circular No. 237/71/96-CX, dated 12-8-1996 as hereunder;
Para 2:The Ready Mix Concrete plant consists of stone crushers, conveyors, vibrator screen to segregate different sizes of stone aggregates, and a sand mill to produce sand from stones. A central batching plant is also installed in which all aggregates are weighed, batched by electrical controls and limit switches. Cement from site is carried to the batching plant by a screw conveyer operated with automatic weighing gauges. Water is fed through flow meters after subjecting such water to chemical analysis. The mixture of stone aggregates, sand, cement and water is mixed in a mixer. The mixture so obtained is loaded on a transit mixer mounted on truck chassis, which is transported to the site of the customers and the same is discharged at site for use in further construction of building etc. The qualities accruing to the Ready Mix Concrete so obtained far out-weigh to those of the site mixed concrete. The final product Ready Mix Concrete is a material in plastic, wet process state and not a finished product like blocks or precast tiles or beams.
2. The difference in “Concrete Mix” and “Ready mix concrete” regarding manufacturing process and taxability under Excise is analysed by the department in the para 4, 5, 6 & 7 of Circular No. 368/1/98-CX, dated 6-1-1998, is as hereunder;
Para 4. Ready Mix Concrete is thus an excisable product which has a separate tariff entry under sub-heading 3824.20 of the Central Excise Tariff Act, 1985. It is also known under the Indian Standard IS : 4926-1976, which for the purposes of that standard defines Ready Mix Concrete as concrete delivered at site or into the purchaser’s vehicle in a plastic condition and requiring no further treatment before being placed in the position in which it is to stay and harden. Ready Mix Concrete attracts duty at the rate of 13% prior to 21-10-1997. Subsequent to 21-10-1997 vide Notification No. 65/97-C.E., dt. 21-10-1997 the duty on Ready Mix Concrete classified under sub-heading 3824.20 has been reduced to 8%.
Para 5. A doubt has been raised as to whether concrete mix manufactured at site using large mechanical devices is a form of ready mix concrete.
Para 6. The matter has been examined and concrete mix implies the conventional method of concrete production conforming to the ISI Standard 456-1978, which is produced and used at the site of construction. It is this concrete mixture, manufactured at the site of construction which is fully exempt vide Notification No. 4/97-C.E., dated 1-3-1997 (S. N. 51). It is thus clarified that ready mix concrete or pre-mixed concrete, by its very nature, cannot be manufactured at the site of construction and is brought from the factory of manufacturer for use in construction.
Para 7. In view of the above and keeping in mind the distinction between Ready Mix Concrete and ‘Concrete Mix’ it is clarified that “Ready Mix Concrete” is an excisable product classifiable under sub-heading 3824.20 now 3824.50.10, chargeable to duty at the appropriate rate whereas “Concrete Mix” manufactured at the site of construction for use in construction at such site, is fully exempt vide Notification No. 4/97-C.E., dated 1-3-1997 (S. No. 51).
3. From the abovementioned reference, it is clear that the two products, “Mixed Concrete” [ISI Standard: 456-1978] and “Ready Mix Concrete” [ISI Standard: 4926-1976] are different products and “Mixed Concrete” is non excisable product (goods) while “Ready Mix Concrete” is an excisable product (goods). Para 3 of Circular No. 237/71/96-CX, dated 12-8-1996 confirms taxability of RMC under Excise considering all the aspects associated with it, as hereunder;
Para 3. In the instant case, the activity engaged for making the product “Ready Mix Concrete” very much falls within the ambit of the meaning of the word “manufacture”, as envisaged under Section 2(f) of CESA, 1944 and in view of the pronouncements of the Hon’ble Supreme Court, as a new product with a new name emerges. As regards, the marketability vis-a-vis the shelf life of the impugned goods, it is quite apparent that in spite of the fact that the goods have a short shelf life, the same are marketable. Thus to put it simply, the product “Ready Mix Concrete” is marketable though within the time frame of its short shelf life. As such, the product satisfies the twin test of “goods” and “marketability” which are needed if they are to be held as chargeable to Central Excise duty under CETA, 1985. So, we can say that “Ready Mix Concrete” is undoubtedly an excisable product. Underlined portion of Para 6 of Circular No. 368/1/98-CX, dated 6-1-1998 clearly states that what is manufactured at plant away from site can never be “Mixed Concrete” considering its very short shelf-life but will only be “Ready Mix Concrete”.
4. Levy of Excise on “Ready Mix Concrete” is also dependent on the place where it is manufactured due to exemption notification. If it is manufactured at the site of construction, it is exempted vide Exemption Notification No. 4/97-C.E. under Sl. No. 51 and as decided in Larsen & Toubro Ltd. Vs. Union Of India – 2006 (198) E.L.T. 177 (Mad.) → Ready Mix Concrete – Exemption from duty available only if manufactured at site by builder for use for its own construction at site of construction – Duty leviable under sub-heading 3824.20 of Central Excise Tariff when ready concrete mix manufactured in a Ready Mix Unit and supplied to sites of construction different from site of mixing plant [this case is appealed in the Supreme Court on different ground that whether RMC & concrete mix are same or different products], and in Chief Engg. Ranjit Sagar Dam Vs. Commissioner Of C. Ex., Jalandhar 2006 (198) E.L.T. 503 (Tri. – LB) as hereunder; → “Ready Mix Concrete” manufactured at site – Exemption under Sl. No. 51 of Notification No. 4/97-C.E. available, provided it is manufactured at the site of construction. – Ready mix concrete and concrete mix falls under Chapter 38 of Central Excise Tariff Act, 1985, fact not disputed. Exemption to Concrete mix at Sl. No. 51 of Notification No. 4/97-C.E. should not be given a narrow meaning as to include only Concrete mix and to exclude from its ambit Ready mix concrete manufactured at site. Concrete mixing plant, by necessity, should be located at place within vicinity of the area where dam is being constructed. Fact of manufacturing Concrete mix away from site and transporting the same to the site itself would not exclude the Concrete mix manufactured from exemption granted under Sl. No. 51 of Notification No. 4/97-C.E. Entry at Column No. 2 at Sl. No. 51 of Notification No. 4/97-C.E. refers to only Chapter 38 ibid and not to any heading or sub-heading No. If the law makers did not intend to exempt Ready mix concrete falling under sub-heading 3824.20/3824.90 ibid, they would have categorically said so [para(s) 9, 10, 11 & 12].
5. Taxability of RMC in various modus oprendi of manufacturing:
Mode 1: If “Ready Mix Concrete” is manufactured at the site of manufacturer of RMC by using own raw material far away from the site of construction, it is taxable under Excise Tariff heading 3824.50.10 with a duty @6% and under exemption notification @2% and liability of VAT will also arise.
Mode 2: If “Ready Mix Concrete” is manufactured at the site of manufacturer/job-worker by using the raw material supplied by the builder of apartment/flats under job work agreement but without following the procedure prescribed under Excise Rules like transfer of raw material under prescribed challan, return of Ready Mix Concrete, the excise duty is leviable on job-worker cum manufacturer as no protection in the form of exemption is available in the hands of job-worker under Excise Act/Cenvat rules in the given situation while excisable product emerges at their end and he removes them by transferring the same to the builder without following prescribed procedure.
Mode 3: If “Ready Mix Concrete” is manufactured at the site of manufacturer/job-worker by using the raw material supplied by the builder of apartment/flats under job work agreement by following the procedure prescribed under Excise Rules like transfer of raw material under prescribed challan, return of Ready Mix Concrete within 180 days, the excise duty is leviable on the principle manufacturer i.e. builder. The reason is that the builder will be either principle manufacturer or principle service provider for this transaction as there will always be either a principle manufacturer or principle service provider (i.e. master) whenever there is a job-worker (i.e. agent). Excise Cenvat Rules clearly stipulates that the job-worker can avail exemption from excise duty liability even if there emerges an excisable product by the job work process if the prescribed excise procedure is strictly followed. In this case excise liability, if any, is automatically shifted to principle manufacturer who consumes such product captively. If any intermediate product becomes excisable product, as the case of manufacturing/processing of RMC, it may be consumed in the manufacture of excisable goods or exempted/non-excisable goods or in the rendering of taxable or non-taxable services and then following situations will emerge;
So we can say that any excisable goods are consumed in rendering any type of service and presumed as intermediate goods on the basis of its consumption/use in rendering of service, excise duty is payable. If Goods are transferred by principle manufacturer/service provider under the challan prescribed under CENVAT rules [Ex. Challan in form 60] and the processor returns the intermediate product within 180 days, Excise duty liability is on the manufacturer. If Job-worker does not returns the same within 180 days, the job-worker is liable for discharging excise duty (though Cenvat credit can be availed by principle manufacturer but not by principle service provider).
6. Implications of Service Tax in the Job work processing arrangement:
If excisable goods are resulted by the job work process/arrangement, it is not taxable under service tax as it falls in negative list. Any item contained in negative list is not chargeable to service tax as per section 66B. Negative list under Section 66D shall comprise of the following services, namely… clause (f) “any process amounting to manufacture or production of good”.
The term “process amounting to manufacture or production of goods” under section 65B(40) means “a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force”. Here, the term duties of excise are leviable under section 3 of the Central Excise Act, 1944 includes goods which are either exempted under any exemption notification or there is nil rate of duty in addition to goods taxable at a particular rate specified in Excise Tariff Act.
The term “manufacture” u/s. Section 2(f) of Excise Act “includes any process;
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; or
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word “manufacturer” shall be construed accordingly and 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”.
7. Further, if an activity performed is in nature of intermediate production process, and the job worker received the raw material (input) from principal manufacturer through excisable challan, then we have to consider mega exemption notification number 25/12-ST, Clause number (30) “Intermediary process by a job worker; [para (c)] Any goods on which appropriate duty is payable by the principal manufacturer”; in that case it is again exempted under service tax. Here, “goods” u/s. 65B(25) “means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” and “principal manufacturer” under para 2(z) of notification number 25/12-ST means “any person who gets goods manufactured or processed on his account from another person”. So, it is very clear that clause 30(c) of mega exemption notification number 25/12-ST does not relate to construction industry.
Further, it is important to consider the word appropriate duty is payable, which is very clear and unambiguous that duty is payable under the provisions of Excise Act and not the actual payment of duty. Here “appropriate duty” means duty payable on manufacture or production under a Central or State Act, but would not include “Nil” rate of duty or duty “Wholly exempt”. It may be noted that nowhere the payment of Excise duty has been specified as an essential condition. This provision will surely affect principle manufacturer (cum service provider). The violation of law by not paying excise duty does not make the goods non excisable so excise duty will remain payable in that case and if excise duty will remain payable on the intermediate goods, this exemption prevails. So discharging service tax in this case will not remove/eradicate the burden of excise liability.
(Author- CA Kamlesh Singh Chauhan – FCA, LL B, DISA(ICA), Mob: +91 9839 094 094, Email ID: firstname.lastname@example.org)