Gift hampers and deemed manufacture

Written by Vivek Sharma | Vivek Sharma | Rajat Bose | Updated: Oct 28 2011, 08:22am hrs
We are traders of cosmetic and toiletries products. During the festival season, we make gift packages by putting different products in a box and sell them in the market. We have been informed that this activity may be liable to excise duty as it is deemed to be manufacture. Please let us know what activities comprise deemed manufacture and whether we are required to pay excise duty on the activity done by us.

Excise duty is levied on manufacturing activity. To levy excise duty, it is necessary that a new article, having a distinct name, character and use comes into existence. However, there are certain activities which may not result in the emergence of a new article, but undertaking such activities would attract excise duty. These activities are known as deemed manufacturing.

With respect to certain specified products, including cosmetics, falling under chapter 33 of the Central Excise Tariff, activities such as packing, repacking, affixation or alteration of MRP, labelling or re-labelling, or any other treatment to render such product marketable to the consumer is liable to excise duty.

There are divergent views on whether the activity of packing, repacking, etc. has to render the product marketable or whether merely undertaking packing, repacking will attract excise duty.

In our view, merely packing or repacking of various duty paid goods into one container should not amount to manufacture, however, it would depend on the specific fact situation. Given the above, it may be advisable for you to approach a legal expert and obtain a detailed legal opinion on this matter.

Our company is engaged in civil construction activities. We undertake construction of dams, tunnels, bridges etc. We also hire sub-contractors for undertaking a part of the construction. Construction of roads, bridges etc. is exempt from service tax under the taxable category of Works Contract Service. Please let us know whether the exemption is also available to sub-contractors since the service tax charged by them would be a cost for us.

It has been clarified vide circular No. 138/ 07/ 2011 dated May 6 , 2011 that services provided by sub-contractors to WCS provider such as architect services, construction of complex etc which are used by the WCS provider for its output service in respect of construction of dams, bridges etc are classified under the relevant taxable category (i.e. architect service or construction of complex service) and liable to Service tax.

However, in case the services rendered by the sub-contractors are independently classifiable under the taxable category of WCS, the sub-contractors can avail the benefit of the said exemption as long as the WCS are in relation to infrastructure projects. This aspect has also been recently clarified through circular 147/16/2011 dated 21 October 2011.

Given the above facts, it appears to us that in case the services provided by your sub-contractors are clearly classifiable under the taxable category of WCS, they should not charge service tax on their invoice. However, if their services are classifiable under other taxable category, exemption may not be available.

Located in Haryana, our company is engaged in sales of computers and computer peripherals. We have received an order for equipment from a unit located in an SEZ, and have been asked by the unit not to charge VAT on the same. Are sales to SEZ units exempt from VAT

You have not mentioned in your query whether you are supplying goods to a unit located within Haryana or in a different state. Inter-state sale of goods to a unit located in SEZ is exempt from payment of Central Sales Tax, subject to the purchasing unit issuing a statutory declaration in Form-I. Sale of goods to a unit located within Haryana is governed by the Haryana VAT Act. Section 7(6) of the said Act exempts sale of goods to a unit located in an SEZ in Haryana, subject to certain conditions.

Given the above, it appears that in case you sell goods to an SEZ outside Haryana, the same is exempt from CST on obtaining Form I from the purchasing dealer and in case the goods are sold to the SEZ within Haryana, then VAT would not be leviable.

The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies