F.No. 341/13/2005-TRU, DT. 12/05/2005

Levy of service tax on certain processes undertaken on job-work basis in relation to manufacture of gem and jewellery

It has been brought to the notice of the Board that certain field formations have interpreted that service tax is leviable on certain processing activities undertaken by job-workers in relation to manufacture of Gem and Jewellery sector, for or on behalf of the client, even though such activities does amount to ‘manufacture’ under Central Excise Law.

2. In 2004, service tax was imposed on the activity of ‘production of goods on behalf of the client’ [clause (v) of section 65(19) of Finance Act] under the category of business auxiliary service. However, it was prescribed in the definition of business auxiliary service (section 65(19) of Finance Act) that the activity amounting to ‘manufacture’ within Central Excise Act, 1944 is not liable to service tax.

3. In Finance Bill, 2005 it is proposed to amend this clause to levy service tax on the activity (not amounting to ‘manufacture’) of ‘production or processing of goods for, or on behalf of, the client’.. The proposed change in the Finance Bill, 2005 would come into effect only from the date notified by the Central Government after the enactment of the Finance Bill, 2005.

4. Processes outsourced in gem and jewellery sector which amount to ‘manufacture’ within the scope of section 2(f) of the Central Excise Act, 1944 would not be liable to service tax. Production of goods on behalf of the client is leviable to service tax under ‘business auxiliary service’ only if such production activity does not amount to manufacture.

Yours faithfully,

(R. Sekar)
Joint Secretary (TRU

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