A Comprehensive understanding of Job Work provisions Under GST
By: – CASanjay Kumawat
Goods and Services Tax – GST
Dated:- 19-4-2018
Introduction
Job work sector constitutes a significant industry in Indian economy. It includes outsourced activities that may or may not culminate into manufacture. The term Job-work itself explains the meaning. It is processing of goods supplied by the principal.
Job work means processing or working on raw materials or semi-finished goods supplied by the principal manufacturer to the job worker. This is to complete a part or whole of the process of the finishing of an article or any other essential operation. For example, big shoe manufacturers (principals) send out the half-made shoes (upper part) to smaller manufacturers (job workers) to fit the soles in the shoes. The job workers send back the shoes to the principal manufacturer after completion of the assigned work.
The concept of job work already exists in Central Excise, wherein
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job would be termed as 'job worker'.
The words used are 'any treatment or process', the scope of the term job work is very wide. While the person sending the goods out for job work (i.e. Principal), has to be a registered person, the job worker may or may not be a registered person though operationally it would be advisable to deal with a registered person only as job worker.
This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986. In the said notification, job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus, the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the GST regime.
The ownership of the goods does not transfer to the job worker but it rests with the principal. The job worker is required to carry out the process specified by the principal, on the goods.
Key elements of job work under GST are as below:
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erson on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.
Supply
Goods sent by a taxable person to a job worker will be treated as supply as supply includes all forms of supply such as sale, transfer, etc. However, the registered taxable person (the principal), under intimation and subject to such conditions as may be prescribed send any inputs and/or capital goods, without payment of tax, to a job worker for job work and from there subsequently to another job worker(s).
It may be noted that, however, if the time frame of one year / three years for bringing back or further supplying the inputs / capital goods is not adhe
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ligated to follow the said provisions. It is his choice whether or not to avail or not to avail of the benefit of these special provisions.
For Job Worker
The job worker is required to obtain registration only if his aggregate turnover, to be computed on all India basis, in a financial year exceeds the specified threshold limit (i.e. ₹ 20 lakhs or ₹ 10 lakhs in case of special category States except Jammu & Kashmir) in case both the principal and the job worker are located in the same State. Where the principal and the job worker are located in different States, the requirement for registration flows from clause (i) of section 24 of the CGST Act which provides for compulsory registration of suppliers making any inter-State supply of services. However, exemption from registration has been granted in case the aggregate turnover of the inter-State supply of taxable services does not exceed ₹ 20 lakhs or ₹ 10 lakhs in case of special category States except Jammu &
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including export) the same directly from the place of business/premises of the job worker within one year in case of inputs or within three years in case of capital goods (except moulds and dies, jigs and fixtures or tools).
Certain facilities with certain conditions are offered in relation to job work, some of which are as under:
* A registered person (Principal) can send inputs/capital goods under intimation and subject to certain conditions without payment of tax to a job worker and from there to another job worker and after completion of job work bring back such goods without payment of tax. The principal is not required to reverse the ITC availed on inputs or capital goods dispatched to job worker.
As per explanation to Section 143 of the CGST Act, for the purpose of job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker. Thus, the inputs after they have undergone some process at the end o
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oods, after completing the job work or otherwise, from place of business of the job worker on payment of tax or export them under bond from such place which again has to be done within the aforesaid specified period of one year or three years respectively.
Failure to comply will result into liability on the Principal to treat the inputs (or capital goods) to the extent not brought back or supplied from job worker's business premises, as supplied to the job worker on the day they were sent out to job worker and accordingly pay tax and interest.
Before supply of goods to job worker, principal would be required to intimate the Jurisdictional Officer containing the details of description of inputs intended to be sent by the principal and the nature of processing to be carried out by the job worker. The said intimation shall also contain the details of another job worker, if any.
The inputs, semi-finished goods or capital goods are required to be sent by the principal to the job worke
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g tax thereon.
* The job worker is often allowed to retain the scrap and its value is adjusted in arriving at labour charges. In that case, considering the provisions of Valuation Rules, scrap value will have to be added to labour charges for payment of GST thereon by the job worker.
Compliance required for sending inputs/capital goods to a job worker
* Section 143 of the CGST Act provides that the principal may send and/or bring back inputs/capital goods for job work without payment of tax, under intimation to the proper officer and subject to the prescribed conditions.
Rule 45 of the CGST Rules provides that the inputs, semi-finished goods or capital goods being sent for job work (including that being sent from one job worker to another job worker for further job work or those being sent directly to a job worker) shall be sent under the cover of a challan issued by the principal, containing the details specified in Rule 55 of the CGST Rules. This rule has been amended vide Not
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ds or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including in cases where such goods are sent directly to a job worker. Further, Rule 55 of the CGST Rules provides that the consignor may issue a delivery challan containing the prescribed particulars in case of transportation of goods for job work. It may be noted that Rule 45 provides for the issuance of a challan by the principal whereas Rule 55 provides that the consignor may issue the delivery challan. It is also important to note that as per the provisions contained in rule 138 of the CGST Rules, an e-way bill is required to be generated by every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees even in cases where such movement is for reasons other than for supply (e.g. in case of movement for job work). The third proviso to Rule 138(1) of the CGST Rules provides that the e-way bill shall be generated either by the principal
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s of Rules 45 and 55 of the CGST Rules, for sending the goods to a job worker. Two copies of the challan may be sent to the job worker along with the goods. The job worker should send one copy of the said challan along with the goods, while returning them to the principal. The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act, 2017.
Where goods are sent from one job worker to another job worker:
In such cases, the goods may move under the cover of a challan issued either by the principal or the job worker. In the alternative, the challan issued by the principal may be endorsed by the job worker sending the goods to another job worker, indicating therein the quantity and description of goods being sent. The same process may be repeated for subsequent movement of the goods to other job workers.
Where the goods are returned to the principal by the job worker:
The job worker should send one copy of the challan received by him from the princi
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the same to the job worker directly.
Where goods are returned in piecemeal by the job worker:
In case the goods after carrying out the job work, are sent in piecemeal quantities by a job worker to another job worker or to the principal, the challan issued originally by the principal cannot be endorsed and a fresh challan is required to be issued by the job worker.
Submission of intimation:
Rule 45(3) of the CGST Rules provides that the principal is required to furnish the details of challans in respect of goods sent to a job worker or received from a job worker or sent from one job worker to another job worker during a quarter in FORM GST ITC-04 by the 25th day of the month succeeding the quarter or within such period as may be extended by the Commissioner. It is the responsibility of the principal to include the details of all the challans relating to goods sent by him to one or more job worker or from one job worker to another and its return therefrom. The FORM GST ITC-04 will
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rt of the valuation for that particular supply, provided it has not been included in the price for such supply. Accordingly, the value of such moulds and dies, jigs and fixtures or tools may not be included in the value of job work services provided its value has been factored in the price for the supply of such services by the job worker.
It may be noted that if the job worker is not registered, GST would be payable by the principal on reverse charge basis in terms of the provisions contained in section 9(4) of the CGST Act. However, the said provision has been kept in abeyance for the time being.
Supply of goods by the principal from the place of business/premises of job worker:
Section 143 of the CGST Act provides that the principal may supply, from the place of business /premises of a job worker, inputs after completion of job work or otherwise or capital goods (other than moulds and dies, jigs and fixtures or tools) within one year or three years respectively of their being s
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er (principal) located in State A to the recipient located in State C. The said transaction will be an inter-State supply. In case the recipient is also located in State A, it will be an intra-State supply.
Supply of waste and scrap generated during the job work:
Sub – section (5) of Section 143 of the CGST Act provides that the waste and scrap generated during the job work may be supplied by the registered job worker directly from his place of business or by the principal in case the job worker is not registered. The principles enunciated in para (b) above would apply mutatis mutandis in this case.
Violation of conditions laid down in section 143:
As per the provisions contained in section 143 of the CGST Act, if the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) are neither received back by the principal nor supplied from the job worker's place of business within the specified time period, the inputs or capital goods (other than moulds and die
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ct read with the rules made thereunder.
It may be noted that if the job worker is not registered, GST would be payable by the principal on reverse charge basis in terms of the provisions contained in section 9(4) of the CGST Act. However, the said provision has been kept in abeyance for the time being.
Further, there is no requirement of either returning back or supplying the goods from the job worker's place of business/premises as far as moulds and dies, jigs and fixtures, or tools are concerned.
Availability of input tax credit to the principal and job worker
In view of the provisions contained in clause (b) of sub-section (2) of section 16 of the CGST Act, the input tax credit would be available to the principal, irrespective of the fact whether the inputs or capital goods are received by the principal and then sent to the job worker for processing, etc. or whether they are directly received at the job worker's place of business/premises, without being brought to the premises o
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the definition of 'job work' presupposes that only activity will be covered under this definition whether the same amounts to manufacture or not. The material sent for job work therefore may be only for processing or complete manufacture. However as per the provisions of Section 143(1) the tax is not payable for goods sent for job work. The service provided by the job worker requires payment of tax as applicable for the services rendered. Specific confirmation that the activity of the manufacture can also be covered under job work could help to avoid any ambiguity.
Conclusion
Key for effective compliance of Job Work provisions under GST lie in:
* proper intimation to the jurisdictional officer
* proper covering challan/ E-way Bill compliances
* timely return/ supply of processed goods from the place of business of the Job Worker.
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Reply By Nikhil Oltikar as =
Dear Sir,
Ref:
"As per Section 143 of the CGST Act, there is no requirement that scrap generat
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