A manufacturer can purchase capital goods against Form C

One of the primary conditions for the levy of service tax is the existence of a (service provider)-(service receiver) relationship. The relation of an employee and the employer is distinct from the relationship between a service receiver and a service provider. A clarification has also been issued by the Central Board of Excise & Customs in this regard. It has been clarified that the action taken by an employee for the benefit of the employer cannot be in nature of service. Thus, as long as the activities performed are the duties within the framework of the terms of employment, the amount paid by an employer to an employee, even when it is termed as commission, would not be treated as ‘commission’ mentioned under the definition of business auxiliary service and, therefore, service tax would not be leviable on such amount.

We work for a pharmaceutical company. The raw material and packing material is supplied to us by our principals. However, the plant, machinery and the equipment required are being purchased by us. Please advise, whether, we are eligible to avail of the benefit of concessional rate of central sales tax (CST) by issuing Form C in the capacity of a manufacturer on the inter-state purchase of plant, machinery and equipment, considering the fact that we are not selling the finished goods.

A manufacturer is eligible to purchase capital goods against Form C, if the goods are covered in his registration certificate issued under the CST Act, 1956 and the goods are to be used for sale, that is the goods manufactured or processed by the registered dealer must be the goods intended for sale. It is immaterial whether they are for intended for sale by registered dealer/manufacturer himself or by anyone else. Hence, if you comply with the conditions mentioned above, you would be eligible to procure capital goods against Form C.

We are engaged in the gold plating of imitation jewellery supplied by jewellery manufacturers. In this context, we have been informed that the process of gold plating of jewellery amounts to ‘manufacture’ and excise duty is leviable thereon. Please clarify.

Manufacture has not been expressly defined in the Central Excise Act, 1944. The definition of ‘manufacture’ under the Act is an inclusive definition. In general, the courts have held that ‘manufacture’ is any process of bringing into existence a commodity having distinct name, character and use. There are certain exceptions to this rule, which have been specifically provided in the central excise law and are termed as ‘deemed manufacture’. The issue of gold plating of jewellery as a manufacturing process has been dealt in various judicial pronouncements, wherein, it has been held that if the gold plating is primarily for the purpose of ornamentation of imitation jewellery and no new product came into existence by plating already manufactured jewellery with gold, then it does not amount to manufacture and hence, no excise duty is leviable. Accordingly, in your case, the process would need to be analysed to ascertain whether, a new product emerges out of that process.

We are a 100% export-oriented unit (EOU) and thereby we avail of all the benefits. Now, we are gradually enhancing the business in the domestic market and accordingly, we wish to exit from EOU scheme. Please advise on the procedure.

The foreign trade policy lays down the procedure to be followed by any unit proposing to exit from the EOU scheme. The unit is required to intimate development commissioner and customs & central excise authorities regarding its intention to exit from EOU scheme. The unit is required to assess its duty liability arising out of debonding and submit details of such assessment to the customs & central excise authorities, who will confirm the duty liability, subject to the condition that the unit has achieved positive net foreign exchange earnings, taking into consideration the depreciation allowed. After payment of duty and clearance of all dues, the unit is required to obtain a ‘no dues certificate’, and then the unit may apply for final debonding before development commissioner. However, it is important to note that during the period between the issuance of ‘no dues certificate’ and the final debonding order, the unit is not entitled to claim any exemption for procurement of capital goods or input.