No excise on outward freight

CHATROOM

The assessable value in job-works will not include the profits or expenses of the buyer.

We are a small scale industry. We take up job-work for several other units. The items do not carry any trade marks. Some of the units sending the goods inform us that their final product is not dutiable, so we pay excise duty on the goods that we manufacture and clear them. We are, however, repeatedly facing difficulties with central excise authorities, who keep raising objections on the valuation of the goods. Now they want duty on to and for transportation charges also. Please clarify.

The system of getting goods manufactured on job-work basis is not new. Under the provisions of the earlier Section 4 and the Rules made there under the matter has been finally decided by the Apex Court in the case of Ujagar Prints Ltd [1989(039)ELT0493(SC)] and the case of Pawan Biscuits Co. Pvt Ltd [2000(120)ELT0024(SC)].

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).

The assessable value in such cases will not include the profit or the expenses (like advertisement and publicity, overheads etc ) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal to principal basis.

The mere fact that the buyer is supplying some raw materials free of cost to the job-worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. Goods manufactured on job-work were earlier assessed under the residuary Rule 7 of the erstwhile valuation Rules of 1975 read with rule 6(b) read with the Apex Court decisions referred to above.

Under the new valuation provisions, introduced with effect from 1.7.2000, there is no departure from the principles laid down by the Apex Court in the above two decisions, in respect of goods manufactured on job-work basis. In other words goods manufactured on job-work basis after 1.7.2000 will continue to be valued in the same manner as they were being valued before 1.7.2000.

In other words, after 1.7.2000, in respect of goods manufactured on job-work basis, valuation would be governed by Rule 11 of the new valuation Rules of 2000 read with rule 6 read with the above two decisions of the Apex Court.

The CBEC Circular no. 619/10/2002-CX (from F.No. 6/47/2001-CS.1) dated 19.02.2002 clarifies the issue in detail. You may also refer to CBEC Circular no. 634/34/2002-CX (from F.No.6/39/2000-CX.1) dated 1.7.2002, where in it is clarified that cost of transporting the raw materials/inputs to the premises of the job-worker will also be added to determine the cost of the raw material/input. No excise duty is, however, payable on the outward freight.

We are helping students get admissions in foreign universities. We give them information about various courses available, the fee structure, how to prepare applications, what papers are required for getting Visa and how they should present themselves before the Visa officials and so on. We also give our opinion on the standing of various universities. The students pay us for the services rendered and sometimes we get payment from some foreign universities also, if our students get enrolled there. We have got a demand that we must pay service tax on the grounds that we are coaching students to get admissions in foreign universities. Please advise whether we have to pay service tax?

In my opinion, the service of giving information to students about the courses available at various foreign universities, their fee structure or advising them about the Visa documentation or formalities does not get covered under any 'taxable service'. The allegation that you are running commercial training or coaching classes is stretching the imagination a bit too far. The commission you receive from foreign universities is also not taxable.

Please let us know whether any specific instructions exist that we must pay 4 per cent additional CVD in case of imports under Duty Free Replenishment Certificate(DFRC) scheme.

Section 3 (5) of the Customs Tariff Act, 1975 (CTA) mandates payment of 4 per cent additional CVD. Under notification no. 19/2006-Cus. dated 1.3.2006 the 4 per cent duty is chargeable on all imported goods. In terms of S.No. 1 of the notification no. 20/2006-Cus. dated 1.3.2006, all goods which are exempt from basic customs duty and additional duty are exempt from the 4 per cent special CVD. Under DFRC, only basic duty is exempted and not the CVD under Section 3(1) of CTA, 1975. Therefore, 4 per cent CVD is not exempted on DFRC imports.

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