'No service tax payable for manufacturing processes'
January, 24th 2012
We are working under SSI exemption. We have now received an export order. We want to know the procedure for not counting the export clearances for the exemption limit of Rs 1.50 crores. Can you help us? Briefly, you have to file a declaration and obtain declarant code number, which you must mention in your clearance documents that contain particulars such as the description of goods, name and address of the buyer, destination, value, vehicle number, date and approximate time of the removal of the goods, etc. Then you have to file quarterly returns along with a copy of the shipping bill, bill of lading, inward remittance certificate, etc. For details, you may refer to CBEC Circular No. 212/46/96-CX, dated 20-5-1996. You may also refer to Part III of Chapter 7 of the Central Excise Manual available in the CBEC website, cbec.gov.in.
We have received an order for job-work, where the supplier will be giving us all the raw materials. The process we carry out will amount to manufacture, as a different item will emerge. The item that we manufacture is also eligible for clearance without duty payment. Are we required to pay service tax for job-work? According to Section 65(105) (zzb) read with Section 65 (19) of the Finance Act, 1994, Business Auxiliary Service does not include any activity that amounts to manufacture of excisable goods. Therefore, no service tax is payable when the process you carry out is manufacture, even if the goods you manufacture are exempted or subject to 'nil' duty. CBEC Letter Dy. No. 2305/Commr(ST)/2011, dated 15-7-2011, confirms this point beyond any doubt.
We had a contract to ship the goods by sea but as the consignment was delayed and the buyer insisted, we exported the goods by air, bearing the additional cost of airfreight. Now, the Customs are insisting that the cost of air freight will be deducted for arriving at the FOB value for the purpose of grant of drawback. Our contention is that the FOB value should be on the basis of sea freight, as we had originally contracted to send the goods by sea. Who is correct? As per CBEC Circular no. 24/2009-Cus dated 3.9.2009, where the buyer and the exporter have contracted the goods on FOB. basis and the same is reflected in the contract and the LC, but the exporter is forced to send the goods by air at his own expense due to an exigency such as contractual obligation to deliver the goods within a certain period of time, it would not be justified to rework the drawback amount by deducting freight element from the contracted FOB value. However the benefit of this circular shall be limited to only 3 per cent of the shipments in a financial year. You have to follow the procedures prescribed in the Circular for getting this dispensation. In case of a dispute, you may ask for a speaking order and go on appeal on the basis of the principles underlying that Circular.