Job Work & Excise

Duty Liability

Since excise duty is on manufacture, duty liability arises only when the goods are manufactured during job work. Where the goods are manufactured during job work, 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 should be given to the Assistant Commissioner of Central Excise who has jurisdiction over the factory of the job worker.

Valuation of Excisable Goods if Job Work is Liable for Duty Payment.

If he Job worker is liable to pay Duty, one of the common issues confronting job workers is that of valuation. The assessable value for the purpose of charging excise duty has to comprise the value of raw materials supplied by the principal plus the conversion charges or job charges incurred by the job worker plus his profit margin.

Valuation of Excisable Goods if the manufacturer is liable for Duty Payment

Sale from Job Worker Factory

A per new Rule 10A where the goods are sold by the raw material supplier/principal manufacturer from the factory of job worker, the assessable value 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.

Sale after Removal of Goods (transfer to other location) from Job Worker Factory

In this case 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 goods are sold. The value of the goods is determined based on the normal transaction value of such goods sold from such other place at or about the same time.

In other words, can follow the principle of depot based valuation under Central Excise applicable where goods are cleared to depots of manufacturers and sold there from. 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.

Scrap

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.

By-Products and Co-Products

Under Job work if any By-product or Co-product is manufactured, depending on the agreement between the Principal and the Job worker, product may be returned to the principal or sold to the job worker or to the third party.

Cenvat Credit Availing in case of Job Work

Cenvat credit can be availed on materials sent for job work as per rule 4(5)(a) of the Cenvat Credit Rules, 2004. 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 one hundred and eighty (180) days of goods being sent to the job worker. Hence, 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 reverse the CENVAT Credit availed towards the inputs or Capital Goods. Later,  manufacturer can take Cenvat credit when the inputs or capital goods are received back in his factory.

The Cenvat credit shall also be allowed in respect of 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.