Job work done in relation to Gem and Jewellery- Whether manufacturing activity or provision of service?

By Vijay Kumar

This doubt arises if the Board’s F.No. 341/13/2005-TRU dt, 12/05/2005 and the Exemption Notification No. 21/2005 dt. 7/06/2005 are read together.

This Board’s letter obviously was given to clarify to field formations, which have interpreted that certain processing activities undertaken by job-workers in relation to manufacture of Gem and Jewellery sector for or on behalf of the client as falling under Business Auxiliary Service.

Para (4) of the Board’s letter reads as follows:

Process 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.

So the process undertaken in relation to gem and jewellery sector amounts to manufacture and hence is out of service tax purview.

But then look at Notification No. 21/2005 dt.7/06/2005 for similar services (or manufacturing process) provided in relation to gem and jewellery under Finance Act,1994. The operative portion of the notification reads as follows:

“the Central Government , on being satisfied that it is necessary in the public interest so to do , hereby exempts the taxable service of production or processing of goods for , or on behalf of , the client , referred in clause ( v ) of clause (19) of Section 65 of the said Finance Act , provided by a commercial concern, in the course of manufacture of ,-

(a) cut and polished diamonds and gem stones; or

(b) plain and studded jewellery of gold and other precious metals,

falling under Chapter 71 of the Central Excise Tariff Act, 1985 ( 5 of 1986 ) from the whole of service tax leviable thereon under section 66 of the said Finance Act.

This notification means that process undertaken in the course of manufacture of gem and jewellery industry fall under Service Tax purview.