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K.R. Srivats

New Delhi , May 16

THE Finance Ministry has made it clear that service tax would not be applicable on outsourced processes, in the gem and jewellery sector, which qualify as `manufacture' under the Central excise law.

The Revenue Department's clarification has come in response to interpretations by certain field formations that service tax is applicable on certain processing activities undertaken by job-workers in relation to manufacture of gem and jewellery (for or on behalf of the client).

This interpretation was being made even though such activities amount to `manufacture' under the Central excise law, the Finance Ministry said.

The Finance Bill 2005 proposes to bring the activity of `processing of goods for or on behalf of the client' under service tax. The service tax levy would be applicable for only those processes that do not amount to `manufacture' under the Central excise law.

This would come into effect only from the date notified by the Central Government after enactment of the Finance Bill 2005.

In 2004, service tax was imposed on the activity of `production of goods on behalf of the client' under the category of `business auxiliary services'.

However, it was prescribed under the definition of business auxiliary service that the activity amounting to `manufacture' within the Central excise law is not liable to service tax.

This implied that production of goods on behalf of the client should be subjected to service tax under `business auxiliary services' only if such production activity did not amount to `manufacture' under the excise law.

India's gem and jewellery exports touched $15.68 billion during April-March, which represented a 29.27 per cent increase in dollar terms to the export performance of $12.13 billion achieved in the same period during the previous year.

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