Pradeep Jain - Chartered Accountant

Query

(PRAVIN SHELKE) Posted On: 27 Apr, 2014

Dear Sir, I have a query specifically on leviable of Service tax on "Fabrication" work at customer's premises which is an excisable area. 1. A job is awarded to a contractor, where both the customer and the contractor are public limited companies. 2. As per the contract awarded, there are two distinctive service components clearly spelt out in the order awarded to the contractor. 3. The first item being an erection & commissioning work to be done at the customer's site. The second item being a 'FABRICATION" work to be done by the contractor at the customer's plant(which is exciseable). The fabrication work will be done by the contractor on free issue materials to be provided by the customer which are structural items and hence partake that of 'capital' goods. 4. The opinion given as to the "Fabrication" work is that the same is not exigible to Service Tax since the same is deemed "manufacture" under Excise Duty and is to be charged Excise Duty under Section 3 of the Central Excise Act 1944 instead and here as the customer is the licensed unit under Excise Duty will be responsible for payment of Excise Duty after the fabrication work is done and the structurals are handed over to the customer. The matter presumably falls under the mischief of section 66D(f) (negative list) of the Finance Act 1994 and hence NO Service tax is to be charged on "Fabrication" work. This is true even if the excisable good is exempted under the Central Excise Act 1944. 5. However Service Tax will be charged by the contractor on the Erection and Commissioning part. 6. The first query is whether the contractor be allowed NOT to charge Service Tax as per point 4 above ? Please note the contractor is not registered as an excisable unit but is registered under Service Tax. 7. The second query is whether the contractor can avail any Input Credit on Service rendered to it by the contractor's sub-contractor on the same Fabrication job? I shall be grateful if you kindly forward your valued opinion. Regards Pravin

As the fabrication work done at customer’s plant is excisable therefore it shall not be charged to service tax by the contractor. The opinion received by you is accurate that the goods as are deemed manufacture than same shall be charged with excise and not with service tax. The process amounting to manufactured are exempted from payment of service tax by virtue of exemption contained in point (f) of Section 66D (negative list) of Finance Act, 1994. Hence the same shall not be taxable to service tax. As the contractor is not registered in excise law, he shall get registered as he is producing an excisable product. As the contractor is not registered in Excise law and not paying Excise duty then he cannot be eligible to take credit for the same. However, if he takes registration for fabrication work and pays duty then he is eligible for taking credit on input services relating to such fabrication work.

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