Friday, September 19, 2014

AGENDA FOR BOARD MEETING REQUIRED TO BE HELD BEFORE AGM FOR PRIVATE LIMITED COMPANIES.


As all of us aware that there are some Resolutions {Mention under Section179(3)} which company required to file with ROC inform  MGT-14 within 30 days of passing of resolution. {In my earlier Article mentioned list of Resolution which we require to file with ROC). 


If you required that list mail me on csdiveshgoyal@gmail.com

Companies, who still not held Board Meeting for calling AGM or will show board meeting on papers in back date. So in this article am trying to help you by providing the following:

1. Draft Detailed Agenda for Private Companies under Companies Act- 2013, by covering maximum resolution (which will help Companies to *save cost of Filling of e-form MGT-14 on different-2 time in future).

2. Draft Minutes for According to given Agenda.

3. Draft Notice Calling Board Meeting.

4. Draft Attendance Sheet of meeting.

5. Draft Notice Calling Annual General Meeting.

6. If Auditor Absence from AGM than a Leave of Absence from the Auditor of company.

7. Draft Director Report for F.Y. Ended on 31st March, 2014.

8. Draft Consent and certification of qualification of Auditor.

9. Draft Minutes of Annual General Meeting.

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Board Meeting through Video‐conferencing


In general parlance, meeting refers to formal or informal deliberative assembly of individuals called to debate certain issues and problems, and to take decisions. Formal meetings are held at definite times, at a definite place, and usually for a definite duration to follow an agreed upon agenda. Meeting can be understood as a meeting of minds, rather than a physical gathering of individuals at a common place, to discuss a common issue. With the advancement in technology, it is now possible to
hold meetings virtually also i.e. through means of audio‐video conferencing. This mode of conducting meetings has been given due recognition under the Companies Act 2013. In the present article we have highlighted the provisions of Companies Act, 2013, along with the prescription contained in the final rules, relating to holding of board meetings through video conferencing. The requirements listed below are in addition to the general requirements specified for conducting board meetings physically.


Meaning of video conferencing or other audio visual means

“Video‐conferencing or other audio visual means” means audio‐visual electronic communication facility employed which enables all the persons participating in a meeting to communicate concurrently with each other without an intermediary and to participate effectively in the meeting.

Matters which cannot be dealt through video conferencing


  1. the approval of the annual financial statements;
  2. the approval of the Board’s report;
  3. the approval of the prospectus;
  4. the Audit Committee Meetings for "consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub‐section (1) of section 134 of the Act;  and
  5. the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
General Rules regarding quorum, venue and participation


  • Participation of a director through video‐conferencing will be counted for the purpose of quorum,unless it is to be specifically excluded for any items of business under any provisions of the Act or the rules.
  • The scheduled venue of the meeting as set forth in the notice convening the meeting, shall be deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to be made at such place.
  • The statutory registers which are required to be placed in the Board meeting as per the provisions of the Act shall be placed at the scheduled venue of the meeting and where such registers are required to be signed by the directors, the same shall be deemed to have been signed by the directors participating through electronic mode, if they have given their consent to this effect and it is so recorded in the minutes of the meeting.
  • No person other than directors, Company Secretary, Chairperson and persons whose presence is required pursuant to a legal provision shall be allowed access to the place where any director is attending the meeting either physically or through video conferencing.

Requirements regarding notice 

Notice shall contain details regarding availability of facility of video conferencing and all necessary details to enable the directors to participate in the meeting through video‐conferencing.

Duties of Individual Directors
  • A director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the company secretary of the company by giving prior intimation to that effect sufficiently in advance so that company is able to make suitable arrangements in this behalf. If this intimation is not given, it shall be presumed that the director shall attend the meeting in person.
  • The director, who desires, to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year.

Procedural requirements On Commencement of the meeting:
At the commencement of the meeting, 

  • - a roll call shall be taken by the Chairperson when every director participating through video conferencing or other audio visual means shall state, for the record his name, location, confirmation that he has received the agenda and all relevant papers for the meeting and confirmation that no one other than the concerned director is attending or having access to the proceedings of the meeting at his location.
  •  After the roll call, the Chairperson or the Company Secretary shall inform the Board about the names of persons other than the directors who are present for the said meeting at the request or with the permission of the Chairperson and confirm that the required quorum is complete.
On transaction of business:


  • Every participant shall identify himself for the record before speaking on any item of business on the agenda
  • If a statement of a director in the meeting through video conferencing or other audio visual means is interrupted or garbled, the Chairperson or Company Secretary shall request for a repeat or reiteration by the Director.
  • If a motion is objected to and there is a need to put it to vote, the Chairperson shall call the roll and note the vote of each director who shall identify himself while casting his vote. 
  • At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the summary of the decision taken on such item along with names of the directors, if any, who dissented from the decision taken by majority.
Requirements throughout the meeting:


  1. Every Company shall make necessary arrangements to avoid failure of video or audio visual connection.
  2. Chairperson of the meeting and the CS, if any, shall take due and reasonable care –
    1. - to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures;
    2. - to ensure availability of proper video conferencing or other audio visual equipment or facilities for providing transmission of the communications for effective participation of the directors and other authorised participants at the Board meeting;
    3. - to ensure that no person other than the concerned director are attending or have access to the proceedings of the meeting through video conferencing mode or other audio visual means; and 
    4. - to ensure that participants attending the meeting through audio visual means are able to hear and see the other participants clearly during the course of the meeting.
  3. The Chairperson shall ensure that the required quorum is present throughout the meeting. 
  4. From the commencement of the meeting till its conclusion no person other than the Chairperson,Directors, Company Secretary and any other person whose presence is required by the Board shall be allowed access to the place where any director is attending the meeting either physically or through video conferencing without the permission of the Board.
On conclusion of the meeting:

  1. Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care:
    1. - to record proceedings and prepare the minutes of the meeting;
    2. - to store for safekeeping and marking the tape recording(s) or other electronic recording mechanism as part of the records of the company at least before the time of completion of audit of that particular year.

Requirements regarding minutes and secretarial records


  • Minutes shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio visual means.
  • The draft minutes of the meeting shall be circulated among all the directors within 15 days of the meeting either in writing or in electronic mode as may be decided by the Board.
  • Every director who attended the meeting, whether personally or through video conferencing, shall confirm or give his comments in writing, about the accuracy of recording of the proceedings of that particular meeting in the draft minutes, within seven days or some reasonable time as decided by the Board, after receipt of the draft minutes failing which his approval shall be presumed.
  • Thereafter, minutes to be entered in minutes book as per provisions discussed under the heading “Minutes”, later in this chapter.

Thursday, September 18, 2014

Know the Impact –‘Increase in EPF Ceiling from Rs.6,500/- to Rs.15,000/- !’


By this time all of you would have read the increase in the EPF ceiling limit finally confirmed through Gazette Extraordinary Notification made on 28th Aug’14 which is effective from 01st Sept’14. This amendment has several impacts apart from increase in contribution. Key highlights and impact analysis of the amendment are summarized in trail:

A. Salary ceiling limit for EPF coverage has been increased from Rs.6,500/‐ to Rs.15,000/‐ p.m.

B. Salary means only Basic + DA + VDA + Retaining Allowance + Cash value of any food concession + any other allowance paid in cash & not defined.

C. Minimum Employee’s Pension w.e.f., 01st Sept’14 will be Rs.1,000/‐ p.m

D. Salary ceiling limit for Employee’s Pension will be Rs.15,000/‐ p.m. Hitherto it was Rs.6,500/‐

E. This means 8.33% of on Rs.15,000/‐ basic i.e. Rs.1250/‐p.m will be diverted to pension fund.Earlier it was Rs.541/‐ only on Rs.6,500/‐ @ 8.33%

F. Those who want to contribute above Rs.15,000/‐ for pension fund – will have to shell out 1.16% additional contribution on the amount in excess of Rs.15,000/‐ from employees share & give declaration (both employer & employee) to that effect within 06 months from the date of this notification failing which any additional contribution made above Rs.15,000/‐ to pension fund would be diverted to EPF fund & will be given the interest as declared from time to time.

G. Employer in addition to 12% of Basic, now will have to contribute 0.50% of Rs.15,000/‐ to EDLI A/C, 1.10% on Rs.15,000/‐ as administration expenses on EPF A/C & 0.01% of Rs.15,000/‐ as administration expenses for EDLI A/C.

H. Minimum Widow Pension w.e.f., from 01st Sept’14 will be Rs.1,000/‐p.m

I. For dependent children with widow, the Children Pension will be Rs.250/‐p.m

J. If the deceased employee is not survived by widow but by the dependent children Rs.750/‐p.m will be the children pension.

K. Eligibility for pension: 10 years of service under pension scheme and on attaining the age of 58years – both condition have to be fulfilled.

L. If the service is below 10 years of service & has not attained the age of 58 years, can withdraw the pension amount or obtain certificate to that effect & resume the count of service in future, if the employee joins for the employment service covered under EPF&MP Act,1952.

M. Pensionable salary up to 31st Aug’14 will be Rs.6,500/‐ thereafter it will be Rs.15,000/‐ till further amendment.

N. If the Employee’s Pension contribution is restricted to Rs.15,000/‐ then the maximum pension at the age of 58 years shall not be more than Rs.15,000/‐ p.m as on date. Hitherto it was Rs.6,500/‐p.m

O. Pension calculation: (Pensionable salary *Pensionable Service)/70

P. 20% increase in the EDLI claim benefits amount. At present the maximum benefit payable under EDLI is Rs.130,000/‐ & the increase of 20% would result in Rs.146,000/‐ as maximum benefit.

Q. There will be no contribution to pension fund for an  International Worker assigned to India w.e.f., 01st Sept’14 if their salary is above Rs.15000/‐ p.m. This means entire contribution both employer &
employees will be apportioned to EPF A/c.

R. Any International Worker who is an existing member of the Pension Scheme as on 01st Sept’14, 8.33% of the employers share would continue to be contributed to Pension Account.

This amendment will have marginal cost escalation on Employers to the extent as mentioned in point “G” above w.r.t., Permanent Employees as well as for contingent employees whose basic salary is more than Rs.6500/‐.

It may be noted that the last amendment w.r.t., ceiling was on 01st June’2001. It is after 13 years the ceiling limit is enhanced, rightly so as economic & business dynamics have changed greatly in the past 13 years!!!''

Check notification for increase in limit of epf from 6500 to 15000/-

Clarifications on mandatory pre-deposit for filing appeals under Service tax, Excise and Customs


The Finance Act (No.2), 2014 (“the Finance Act”) has substituted new Section 35F of the Central Excise Act, 1944 (“the Excise Act”) which is also applicable for Service Tax vide Section 83 of the Finance Act, 1994 and Section 129E of the Customs Act, 1962 (“the Customs Act”) to prescribe mandatory pre-deposit of 7.5% or 10% for first stage or second stage appeal, of duty demanded where duty demanded is in dispute or where duty demanded and penalty levied are in dispute and where penalty alone is in dispute, the pre-deposit shall be calculated on the penalty imposed. The said amendments have become applicable for the appeals to be filed after August 6, 2014 and all pending appeals/stay applications filed prior to August 6, 2014 shall be governed by the erstwhile provisions.

The Central Board of Excise & Customs has issued Circular no. 984/08/2014-CX dated September 16, 2014 (“the Circular”) providing clarifications on various doubts / issues raised by trade bodies, industry associations and field formations etc., on implementation of new provisions pertaining to amendments made in appeal provisions in Customs, Central Excise and Service Tax are as under:

1.    Quantum of pre-deposit in terms of Section 35F of the Excise Act and Section 129E of the Customs Act

Issue: There is confusion/ doubt if an appellant has already deposited 7.5% in first stage of appeal then, the Appellant is required to deposit another 10% in second stage of appeal or differential 2.5% only.

The CBEC has clarified that in the event of appeal against the order of Commissioner (Appeals) before the Tribunal, 10% pre-deposit has to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals). However, this amount need not be the same as the amount of duty demanded or penalty imposed in the Order-in-Original in the said case.

Further, it has been clarified that in a case, where penalty alone is in dispute and penalties have been imposed under different provisions of the Act, the pre-deposit would be calculated based on the aggregate of all penalties imposed in the order against which appeal is proposed to be filed.

Furthermore, in case of any short payment or non-payment of the amount stipulated under Section 35F of the Excise Act or Section 129E of the Customs Act, the appeal filed is liable for rejection.

2.    Payment made during investigation:

The CBEC has clarified that payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs 10 crores, can be considered to be pre-deposit made towards fulfilment of stipulation under Section 35F of the Excise Act or Section 129E of the Customs Act.

However, amounts paid over and above the amounts stipulated under Section 35F of the Excise Act or Section 129E of the Customs Act shall not be treated as deposit under the said sections. Further, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.

Important to note: It means that No Interest benefit as granted under Section 35FF of the Excise Act or Section 129EE of the Customs Act on any excess payment made beyond 7.5% or 10% of duty or penalty.

3.    Refund of pre-deposit:

In case appeal is decided in favour of the assessee, he shall be entitled to refund of amount deposited along with the interest at the prescribed rate (recently notified @ 6% PA) from the date of making the deposit to the date of refund in terms of Section 35FF of the Excise Act or Section 129EE of the Customs Act.

Further, the refund of pre-deposit made by the assessee should not be withheld on the ground that Department is proposing to file an appeal or has filed an appeal against the order granting relief to the assessee. The concerned Jurisdictional Commissioner should ensure that refund of pre-deposit made for hearing the appeal should be refunded within the stipulated time of 15 days of the receipt of the letter of the assessee seeking refund.

A simple letter from the person who has made such deposit, requesting for return of the said amount, along with a self attested Xerox copy of the order in appeal or the CESTAT order consequent to which the deposit becomes returnable and attested Xerox copy of  the document evidencing payment of such deposit, addressed to Jurisdictional Assistant/Deputy Commissioner of Central Excise and Service Tax or the Assistant/Deputy Commissioner of Customs, as the case may be, would suffice for refund of the amount deposited along with interest at the rate specified. Record of deposits made under Section 35F of the Excise Act or section 129E of the Customs Act should be maintained by the Commissionerate so  as to facilitate seamless verification of the deposits at the time of processing the refund claims made in case of favourable order from the Appellate Authority.

It has been further clarified that if the Department contemplates appeal against the  order of the Commissioner (A) or the order of CESTAT, which is in favour of the appellant, refund along with interest would still be payable unless such order is stayed by a competent Appellate Authority.
In the event of a remand, refund of the pre-deposit shall be payable along with interest.

4.    Recovery of the Amounts during the Pendency of Appeal:

It is clarified that no coercive measures for the recovery of balance amount i.e., the amount in excess of 7.5% or 10% deposited in terms of Section 35F of the Excise Act or Section 129E of the Customs Act shall be taken during the pendency of appeal where the assessee shows to the jurisdictional authorities:

(i)            Proof of payment of stipulated amount as pre-deposit of 7.5% / 10%, subject to a limit of Rs.10 crores , as the case may be; and

(ii)     Copy of appeal memo filed with the appellate authority.

It has been further provided that recovery action, if any, can be initiated only after the disposal of the case by the Commissioner (Appeals)/ Tribunal in favour of the Department unless the order of the Tribunal is stayed by the High Court/Supreme court. The recovery, in such cases, would include the interest, at the specified rate, from the date duty became payable, till the date of payment.

5.    Other clarifications on Procedure and manner of making pre-deposits:

The Circular has also clarified on procedure and manner of making the pre-deposit while filing the appeal by the assessee.

The Circular may be viewed by clicking on the following link:


Thanks & Best Regards.

Bimal Jain 
FCA, FCS, LLB, B.Com (Hons)Flat No. 34B, Ground Floor, Pocket - 1,Mayur Vihar, Phase - I,
Delhi – 110091, India Desktel: +91-11-22757595/ 42427056 Mobile: +91 9810604563

Wednesday, September 17, 2014

CLARIFICATIONS ON AMENDED APPEAL PROVISIONS UNDER INDIRECT TAXES



Vide the aforesaid circular, Central Board of Excise & Customs (CBEC) has addressed various issues emerging out from the introduction of mandatory pre-deposit for filing appeal before CCE(A) or CESTAT, after 6th August, 2014[i.e. enactment of Finance(no.2) Act, 2014].

The said circular has dealt upon the following areas:

Quantum of pre- deposit:

  • o Appeal before CESTAT against the order of CCE(A) shall be accompanied with 10% of duty or penalty imposed by CCE(A), which may not be the same as determined originally by adjudicating authority;
  • o Therefore, it is intended that no adjustment shall be allowed on account of pre-deposit made earlier equal to 7.5% of duty at the time of filing appeal before CCE (A).

Note: The circular has used the expression 10% of duty or penalty, whereas, it has been categorically amended in Finance (no.2) Act, 2014 that in case of penalty and duty under appeal, the prescribed percentage shall be computed only on duty and not penalty.

Payment made during investigation:

  • o The payment made during the course of investigation or audit, prior to filing of appeal, shall be considered as pre-deposit as well and be  adjusted accordingly;
  • o If excess amount (i.e. over and above 7.5% or 10%, as the case may be) is paid earlier during audit, the said excess amount shall not be treated as pre-deposit.
  • o The date of filing of appeal shall commence from the time when the aforesaid amount is deposited during the audit/investigation.
Recovery of amounts during appeal

  • o Circular for recovery of demand (issued in Jan’13) has become redundant for appeals filed post 6th Aug’14.
  • o No recovery proceedings shall be initiated till the appeal is disposed of by CESTAT.
  •  In other words, no separate stay application is required till the order of CESTAT. Only, after the order of CESTAT/High Court, the stay application needs to be filed to High Court/ Supreme Court
  • o Earlier, stay application was required to be made at the time of filing appeal before CESTAT as well, against the order of CCE(A)/CCE.
Refund of pre-deposit:

  • o Interest @ 6% p.a. on delay in refund of pre-deposit shall be payable from the date of making the deposit till the date of refund;
  • o Refund application needs to be made by the appellant and within 15 days from the receipt of letter (whether order is further challenged by department or not), the refund along with interest shall be paid. 
  • o The application shall be accompanied by self attested Xerox copy of order in appeal or order of CESTAT, and attested Xerox copy of document evidencing the payment of pre-deposit.
Prepared By: CA Sumit Grover Sumitgrover.ca@gmail.com +91-9910946323
Download Circular No 984/08/2014CX Date- 16th September, 2014

Tuesday, September 16, 2014

TABLE FOR STEP OF INCORPORATION OF COMPANY


This table is for those people, applying for Company Incorporation after 1st April, 2014. Form INC-22 and form INC-7 are being rejected by the ROC Authorities, as many people are using the same old AOA formats for incorporating company. 

The first thing to take care of under the new Companies Act, 2013 is to follow a changed procedure for giving birth to a Company.

Complete and detailed procedure is available here


EXPLANATORY STATEMENTS UNDER COMPANIES ACT, 2013


INTRODUCTION 

General principle of law is that the decisions which are serious in nature or which involve significant business transactions are taken at Shareholders meetings. The scope of this decision making power has been increased by Companies Act, 2013. 

To enable shareholders to take apt and a well informed decision, it is necessary to provide them with requisite information. Under Companies Act, 1956 section 173 ensured that the shareholders are well equipped with necessary information, but as the decisions to be taken at the meeting are of various types therefore the information required also cannot be framed in a particular stereotype format and unlike Companies Act, 1956 proper care has been taken of this in the new law.

EXPLANATORY STATEMENT 
Different requirements with respect to explanatory statements pursuant Companies Act, 2013 are stated as under:-

Monday, September 15, 2014

Job Work under Central Excise and Service Tax


Huge number of industries finds it very difficult to complete the entire process of manufacturing activity. The industries depends on outsiders support for many things like testing, processing on raw material etc., for completing/semi completing the manufacturing process.

Presently in industry field many manufacturers send raw materials/semi-finished materials for some or other process. The activities undertaken by small/medium industries on raw material/semi-finished as per the directions of principal manufacturer are known as job work, the person/industry undertake job work is commonly known as job worker.

The small/medium industries who undertake the work of job work should be aware of the provisions under central excise and service tax applicable to them, so that they will not face in kind off problem in future from department/principal manufacturer.

Even principal manufacturer should be aware of the provisions applicable for job work not only for the purpose of enabling him to plan his processes in order to optimize the benefits available under the Central Excise Act, 1944 but would also enable him to cut costs on his manufacturing. Many a time, the job worker may be more efficient both in terms of the quality and cost as compared to the main manufacturer due to pursuance of core competencies. Most of the big manufacturers in fact make very good use of this concept and assign processes to more than one vendor which enables them to cut down on manufacturing costs.

Meaning of Job work

Job work is defined in Notification No. 214/86 dated 25.03.1986

Explanation I. - For the purposes of this notification, the expression "job work" means processing or working upon of raw materials or semi-finished goods supplied to the job worker/ so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.
And under Rule 2(n) of the Cenvat Credit Rules, 2004

(n) "job work" means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression "job worker" shall be construed accordingly;
If one were to go by the definition of the term “job work”, it is evident the raw materials have to be supplied by another person. In Prestige Engineering India Ltd v CCE Meerut, (1994 (09) LCX 0110), the Supreme Court held that when the job worker contributed his own material to the goods supplied by the customer and engaged in manufacturing, the activity was not one of job work. However, minor additions by the job worker would not take away the fact that the activity was one of job work.

Job Work and Manufacture (under Central Excise)

Since excise duty is on ‘manufacture’, duty liability arises only when the goods are manufactured during job work. The test as to whether the process amounts to manufacture or not would be determined as per section 2(f) of Central Excise Act, 1944 which is relevant defines manufacture as including any process incidental or ancillary to the completion of the manufactured product….. Various decision of the Supreme Court have arrived at a conclusion that where the product undergoes a change whereby a new article having a distinctive name, character or use emerges or not from the said process in manufacture (Honorable Supreme Court in Delhi Cloth and General Mills Co. Ltd Vs UOI (1962(10) LCX 0001))

If the process undertaken by the job worker amounts to manufacture as per the definition or decided case laws, the job worker would be liable to pay duty of excise on the goods so manufactured unless the principal manufacturer who has supplied him the goods for job work, furnishes a declaration under Notification 214/86 dated 25.03.1986 which exempts goods manufactured by a job worker from duty of excise provided the said goods after job work are returned to the principal or cleared for export or cleared for home consumption on payment of duty of excise. Where the goods are returned to the principal, the principal should either clear it on payment of duty or use it in his manufacturing process which should result in a dutiable product being manufactured.

The declaration as stated above should be given to the Assistant Commissioner of Central Excise who has jurisdiction over the factory of the job worker.

If the principal manufacturer sending the goods for job work activity is a SSI unit, availing the benefit of exemption, the benefit of notification 214/86 cannot be claimed by the job workers, as the person sending the raw materials would not be paying duty of excise on the final products. For these purposes, Notifications 83/94 and 84/94 have been issued. The said notification provides exemption to job worker from payment of duty of excise in such cases.

Job work & SSI exemption

Many of us have confusion, whether the turnover of clearance under Notification 214/86 CE (NT) should be included for the purpose of computation of value of Rs.150 lakhs and Rs. 400 lakhs to avail the benefit of SSI exemption prescribed under Notification No. 8/2003 CE(NT) dated 01.03.2003.

However, Notification No. 214/86 CE (NT) has another significance, that is where the job worker also avails the benefit of notification 8/2003 CE (NT) dated 01.03.2003, the job work done under this notification would not be included for the purpose of determining whether or not his turnover has exceeded the said limit of Rs. 150 lakhs for the purpose of determining duty liability if any or Rs. 400 lakhs for the purpose of determining eligibility to exemption u/n 8/2003 CE in the subsequent financial year.

Job work under Service Tax

Where the processing undertaken by the job worker does not amount to manufacture, the said job worker could be liable to service tax.

Prior to Negative list regime:

Service Tax on job work where the process does not amounts to manufacture was levied under ‘Business Auxiliary Service’ as per which, the activity of production or processing of goods for, or on behalf of the client would be taxable. The liability in terms of job work can arise where the processing is done for the client. However one should note that where the processing amounts to manufacture, the same would not be taxable under service tax and the liability if any would have to be studied under Central Excise. Even if the taxability of the processing is to be seen under Business Auxiliary Service, the job worker would be entitled to exemption from service tax under notification 8/2005 ST where the goods after processing are returned to the principal for use in or in relation to manufacture of dutiable goods which are cleared on payment of duty of excise. Where the goods to be cleared by the principal are exempted goods or goods which are chargeable to nil rate of duty, the exemption to the job worker u/n 8/2005 ST would not be available and he would be liable to service tax.

Post Negative list regime (after 01.07.2012):

Even after introduction of negative list, we require to refer rule 2(n) of Cenvat Credit Rules, 2004 for understanding what is job work.

Under Negative list regime, one should analyze the negative list which contains 17 services which are out of the purview of service tax. As per Section 66D(f) of the Finance Act, 1994 any process amounting to manufacture or production of goods is not taxable service . Accordingly, it is clear that if the process amounts to manufacture, then no service tax liability arises.

Further what is “Process amounting to manufacture or production of goods”, which is defined under section 65B(40) of act, means, 
a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, 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.

Hence, it is clear that even under negative list regime, if the process amounts to manufacture service tax is not application and one should refer negative list serial number (f) for the same.

Next, what happens if the process does not amount to manufacture; the job worker should refer to the exemption provided in Notification No. 25/2012 ST 20.06.2012 (called as Mega Exemption Notification). As per the said Notification, job work in relation of any goods on which appropriate duty is payable by the principal manufacturer, is exempted.

What is appropriate duty? 

Which is defined in the Notification and accordingly it means 

“duty payable on manufacture or production under a Central Act or a State Act, but shall not include ‘Nil’ rate of duty or duty wholly exempt”.

Who is Principal manufacturer? 

Which is also defined and it means 

“any person who gets goods manufactured or processed on his account from another person)”

Job work & Cenvat Credit

The concept of cenvat credit is relevant from the angle of principal manufacturer who sends the raw material/semi-finished goods for job work. The provisions of cenvat credit with regard to availment of credit is provided in Rule 4(5)(a) of the Cenvat Credit Rules, 2004. The principal manufacturer can avail the Cenvat credit on materials sent for job work as per rule 4(5)(a) of the Cenvat Credit Rules, 2004.

For which, it has to be established from the records, challans or memos or any other document produced by the manufacturer taking the Cenvat credit that the goods have been received back in the factory within 180 days of goods being sent to the job worker. So maintenance of proper inventory accounting records, job work register, details of nature of processing undertaken and quantities received back along with scrap generated would gain importance. The movement should be under a challan giving the particulars as to the Rule under which the same is being sent. The challan would be in triplicate with two copies of the same accompanying the goods to the job worker who would return one copy with the goods being sent back to the principal after completion of the process. Where the goods are sent back in lots, he is free to send his own delivery challan with the goods and send back the original delivery challan received from the principal, with the final consignment being sent to the said principal.

If the inputs or the capital goods are not received back within one hundred and eighty days, the manufacturer shall pay an amount equivalent to the Cenvat credit attributable to the inputs or capital goods by debiting the Cenvat credit account with the amount so attributable to the inputs or capital goods not received. But the manufacturer can take once again the Cenvat credit so debited when the inputs or capital goods are received back in his factory.

The Cenvat credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job worker for the production of goods on his behalf and according to his specifications. The restriction with regard to the requirement of receiving the goods back within 180 days from the date of sending would not apply to such tools, dies, fixtures and moulds.

Valuation under Central Excise – Job Worker

Before 2007 valuation of job work was as per the ratio of Ujagar Prints 1989 (039) ELT0493 (SC) case; It was clearly held that in respect of goods manufactured on job-work basis, assessable value would be the job charges (including the profit of the job-worker if not already included in the job-charges) plus the cost of the materials used in the manufacture of the item (including the cost of the materials supplied free of cost to the job-worker).

In Budget 2007 a new rule i.e., Rule 10A has been introduced in Central Excise Valuation (Determination of Price of Excisable goods) Rule 2000, vide Notification No. 9/2007-C.E. (N.T.) dated 1.3.2007 in respect of the goods produced or manufactured by Job Worker.

A new Rule 10A was inserted in the said Rules which stipulate that,

  • Where the goods are sold by the raw material supplier/principal manufacturer from the factory of job worker - the value would have to be the transaction value of the goods so sold by the raw material supplier/principal. This will apply only when the raw material supplier and the buyer of the goods are not related and price is the sole consideration for the sale and the goods are sold for delivery at the time of removal from the job worker's factory.
  • Example: Let the value of raw materials supplied by principal be Rs. 1,00,000 and the job workers conversion cost be Rs. 15,000 and his profit margin be Rs. 5,000. If the principal sells the goods processed by the job worker at Rs. 1,50,000, what is the assessable value for the job worker?
  • Comment: As per the decision in Ujagar Prints case, the assessable value for charging duty of excise would have been Rs. 1,20,000. This method would hold good till 01.04.07. Presently, by virtue of Rule 10A introduced as aforesaid, the assessable value for the job worker would not be Rs. 1,20,000 but would be Rs. 1,50,000 (that is the price charged by the principal for sale of the processed goods).
  • - In a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of the job worker - the normal transaction value of such goods sold from such other place at or about the same time has to be adopted. This, in other words follows the principle of depot based valuation under Central Excise applicable where goods are cleared to depots of manufacturers and sold therefrom. Where such goods are not sold at or about the same time, then the normal transaction value of such goods at the time nearest to the time of removal of said goods from the factory of job worker is to be adopted. The cost of transport from the premises where from the goods are sold, to the place of delivery, would not be included in assessable value.

Precautions to be taken by the principal manufacturer generally

The principal manufacturer is responsible for the duty payment on the scrap generated at the job worker’s premises. The job worker may also remove such scrap on payment of appropriate duty of excise and in which case principal manufacturer will be relieved from his duty liability. The principal manufacturer should therefore have a proper mechanism for the purpose of tracking the quantum of waste or scrap generated at the job worker's premises.

Further, the principal manufacturer availing the benefit of cenvat credit should maintain proper records to prove that the material are received within 180 days as per Rule 4(5)(a) of Cenvat Credit Rules, 2004. In case not received the reversal of cenvat credit attributable to such materials and once such material received back (that is after 180 days) credit should be taken back. To comply with these provisions the principal manufacturer requires to maintain proper job work control register plus security records (returnable).

By Madhukar N Hiregange
The paper writers acknowledge CA. Lakshmi G K for updating this article.
In case of any queries contact the paper writers at mhiregange@gmail.com or lakshmi@hiregange.com.