CA Bimal Jain
It came to the notice of the Central Board of Excise and Customs (CBEC or the Board) that certain field formations are taking a view that Service tax is payable on services received by the apparel exporters from third party undertaking job work on the premise that the services received by apparel exporters is of manpower supply service, which neither falls under the Negative list nor is specifically exempt. However, trade is of the view that the such services are of job work involving a process amounting to manufacture or production of goods, and thus would fall under the Negative list of services given under Section 66D(f) of the Finance Act, 1994 (the Finance Act) and hence would not attract Service tax.
The Board vide Circular No. 190/9/2015-ST dated December 15, 2015 (the Circular) has clarified the issue in the following manner:
♣ The nature of Manpower Supply service is quite distinct from the service of Job Work:
- Essential characteristics of Manpower Supply service: The manpower supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider’s accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. Further, the value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle.
- Essential characteristics of Job Work service: In case of apparel, if the service provider is assigned a job, for e.g., fabrication/stitching, labelling, etc. of garments, service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words, service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.
♣ Exact nature of service to be determined on case to case basis: The exact nature of service needs to be determined on the facts of each case, which may vary from case to case i.e. after taking into account the nature of agreement/contract and the service being provided by the service provider.
♣ Every Job Work is not covered under the Negative list of services: Job Work service would be covered under the Negative list of services specified under Section 66D(f) read with Section 65B(40) of the Finance Act, if the Job Work involves a process on which duties of Excise are leviable under Section 3 of the Central Excise Act, 1944 and thus every Job Work is not covered under the Negative list of services.
Section 66D and Section 65B(40)of the Finance Act is reproduced herein below for the ease of reference:
Section 66D(f) of the Finance Act reads as under:
(f) services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption;
Further, Section 65B(40) of the Finance Act reads as under:
(40) process amounting to manufacture or production of goods means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944.) or the Medicinal and Toilet Preparations (Excise Duties) Act, 1955” (16 of 1955) or any process amounting to manufacture of 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;
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