The Hindu Business Line : Contractor or manufacturer?

We have been manufacturing fly ash bricks in Jamshedpur. Recently, we bagged a contract with a big company in Ranchi for manufacturing bricks for them at their construction site. We are an SSI and our turnover is under Rs 1 crore. No excise duty would be leviable if we are treated as a manufacturer. How will the tax authorities treat us: As contractor, manufacturer or service provider? And what taxes are we liable to pay?

Mr Anup Dujari

Production of fly ash bricks from raw materials will amount to manufacture within the meaning of Section 2(f) of Central Excise Act, 1944, as a new product having a different name, characteristics and function comes out of the inputs used. Though you are manufacturing these goods on contract basis, under excise law, you will be the manufacturer.

Only when production of goods does not amount to manufacture will such production activity will treated as a service in the production/processing of goods on behalf of a client under the category of `Business Auxiliary Service' as per the definition contained in Section 65(19) of Finance Act 1994. The fact that you are eligible for excise duty exemption will not alter the situation with regard to service tax liability, as the processing undertaken by you is outside the purview of service tax provisions.

Accordingly, in the situation described by you, you will be treated only as a manufacturer of excisable goods and, consequently, there is no service tax liability on you.

Send in your queries to MentorAtYourService@gmail.com

S. Murugappan

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