Job Work for Uttaranchal Himachal Units liable to Excise 

  A K Bhasin Advocate

The Job Workers who are working for Units based in Excise Free Zones of Uttaranchal and Himachal are not entitled for exemption from Central Excise duty when the job workers themselves are located outside such zones as it is one of the main condition for availing the exemption under Central Excise Notification No.214/86 that the Final Product must be cleared on payment of duty. When no duty is being paid by Uttaranchal and Himachal Units; the question of excise exemption to a job worker who is located outside Uttaranchal or Himachal Zone does not arise.   

The concept of getting few processes done from outside the factory premises may be very old. If one looks back, the concept may be in practice by the Industry since beginning but what is to be seen is as to how the said concept was being dealt with, by the Central Excise Law. The Central Excise Act and Rules, were framed in 1944. In Central Excise Rules, the earliest known provision was contained in rule 56B of the erstwhile Central Excise Rules, 1944.

But the term job work was perhaps used for the first time in notification no. 119/75 – CE dated 30.04.75. The explanation in notification defined ‘job work’ as “such items of work where an article intended to undergo manufacturing process is supplied to job worker and the article is returned by the job worker to the supplier, after the articles have undergone the intended manufacturing process, on charging only for job work done by him.”

The concept of job work was recognized by Central Excise legislation when MODVAT Credit Rules were inserted in Central Excise Rules, 1944 vide notification no. 176/86 dated 01.03.86. Rule 57F(2) was specifically designed to deal with the situation that arise during the course of sending the goods to job work. Interestingly the word ‘job work’ is not used anywhere in the above rule. Central Government however issued a Notification No. 214/86 dated 25.03.86 to grant exemption to goods manufactured in a factory as job work. The term ‘job work’ is defined in explanation given in the notification.

This notification can be divided into four legs: First, is that the notification grants exemption to goods manufactured in a factory as a job work from whole of the duty of excise leviable thereon which is specified in Central Excise Tariff Act, 1985 and the additional duty of excise. What is important is that the goods should have been manufactured: -

(a)     in a factory; AND

(b)    as a job work.

Both the above ingredients shall be met, for claiming exemption under this notification.

The second leg pertains to various conditions that are required to be complied with. The exemption granted is not absolute but is subject to fulfillment of these conditions. These conditions are two fold. One part of conditions is before clearance from the premises of job worker. For example the following conditions are required to be seen for being eligible to avail the exemption: -

(a)        that the duty of excise is leviable in whole or in part on goods in which these are to be used subsequently. This means that if the final products are exempt or chargeable to Nil rate of duty, the benefit of exemption is not available. As an example following case law is referred: -

Machino craft Vs. CCE- Parts of solar collector manufactured on job work and returned to raw material supplier who used them in manufacture of Solar collector. Benefit of Notification No. 214/86 not available as solar collector is exempt under Notification No. 205/88.

(b)        that if the final products are exempt, the benefit of notification is still available provided such final products are: -

I.                   meant for removal to free trade Zone (FTZ) or to 100% EOU on Hardware Technology Park or Software Technology Park or supply to UNO or supply to international organization or supply to projects funded by these organizations.

II.                meant for removal under bond for export.

III.            meant for goods to be cleared after discharging obligation under rule 6 of the CENVAT credit Rules, 2004. That is, the goods would be cleared on payment of amount calculated at 10% of the sale price.

The second part of conditions is in the nature of post clearance. These conditions are to be fulfilled by supplier of goods. The notification is strange in a sense that this is perhaps the only notification, which grants exemption to one person whereas the conditions are required to be complied by another person. This means if supplier does not fulfill the conditions, the job worker would lose the benefit of exemption under this notification. One of the condition is that the supplier undertakes to discharge the duty liability and produces the evidence of the same. In nutshell the conditions to comply with, by supplier are as under: -

I.          Supplier of raw material / semi-finished goods gives an undertaking to the AC/DC having jurisdiction over the factory of job worker that the goods on receipt shall be

·         used in manufacture of final product

·         removal from his factory under bond from export

·         removed to a unit in STZ / EOU / Hardware/Software        Technology park / UNO / international Organization / Projects funded by these organizations.

·         removal by manufacturer of dutiable and exempted final products on payment of amount equal to 10% of sale price.

II.        The said supplier produces evidence that the said goods have been used or removed in the manner so prescribed.

III.      The said supplier undertakes to discharge duty liability on final products.

The third leg in notification is the definition of job work given in explanation at the end of notification. This definition assumes importance because of the reason that it is an inbuilt provision in the notification itself. Any diversion from the definition given in notification may lead to disentitlement of the exemption. It is also significant to note that there have been lot of amendments in the notification since its issuance and almost all other legs in the notification have undergone lot of changes whereas the explanation giving definition of job work had remained unchanged throughout.

The basic ingredients of the definition of job works are enumerated below: -

I.                   The raw material / semi-finished goods are supplied to the job worker.

II.                The said material itself is processed /worked upon.

III.            The activity done may be to complete a part or whole of the process.

IV.               The activity must result in the manufacture or finishing of an article.

V.                   Any other operation essential for said process.

The fourth leg pertains to the table annexed with the Notification. This table gives two lists each showing Description of goods. One list shows the goods, which are manufactured at job worker’s premises and to which the exemption is granted vide this notification. The second list gives those goods, which are the final products, which are manufactured at supplier’s end and in which the goods, manufactured at job worker’s end, are used. Initially the exemption was restricted to few articles but gradually the number of items in the list was enlarged and as on date almost all the items are covered except following:-

I.                   Polyster Filament Yarn falling under Ch. H. 5402.

II.                Light Diesel Oil

III.            High Speed Diesel Oil

IV.               Motor spirit known as petrol

Since a job worker is also a manufacture in true legal sense, the above discussion may be useful in dispelling various prevalent confusions regarding applicability of Central Excise duty on activity of job work.