Friday, June 28, 2013

LBT on Job Work - Explained

Let me explain this with diagrams. The job worker can be in LBT area or Outside LBT area. This gives us 2 situations.

In this case the job worker is situated outside LBT area and hence goods are sent outside city for processing. The goods cross border of city 2 times, so we need to study what are the implications at the each Entry and Exit. While sending good there is no levy of LBT as it is only on Entry of Goods into the city. When the goods are received after processing there is levy of LBT. If there were on provision of Rule 28 for this then the LBT had to be paid on whole of the value of goods imported. But since there is Rule 28, we need to pay LBT on only the value addition of the goods i.e. only on the amount of processing charges. Here for example the goods were sent for painting then only on the painting charges. However this exemption for paying LBT on the value addition is subject to below mentioned conditions which are required to be fulfilled.
Another question arises as to what will be the rate of LBT on such Value Addition. This shall be the default rate i.e. the rate on the goods which are not classified. This rate varies with the corporation to corporation. It is 5% for Thane, While 4% for Nagpur, Navi Mumbai and Pune.

In this case the Job Worker is in LBT area and goods are coming into the city for processing and then sent back. Here too we shall analyze what will happen at each entry and exit of goods.
At the time of entry of goods Rule 28 exempts goods from levy of LBT if below given conditions are fulfilled.

Conditions for claiming exemption of Rule 28 –
  1. There must not be any change in the condition or appearance of goods.
  2. There must not be any change of the ownership of goods
  3. The goods must be reimported or re-exported (as case may be) within 6 months of time from the date of import or export.
  4. Information regarding such importation and exportation must be furnished in the returns for the relevant period. 
Thus the above discussion gives us some important conclusions.
  • These provisions do not lead to double taxation of the goods.
  • It is the person who is sending the goods for processing shall be liable for LBT payment and not the Job-Worker.
  • The area outside the city can be a LBT area or non-LBT area, these provisions shall apply as it is.