Meaning of job-work under GST:
“job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker shall be construed accordingly” [Section 2(68)]
Before we discuss the implications of above definition, it is important to understand that the activity of sending the goods for job-worker and receiving the same back have been given a tax pass-through in GST. This means that sending goods for job-work and getting them back after the job-work will have no tax implications.
Now, different phrases used in the above definition are being discussed separately:
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1. Any treatment or process
The word ‘any’ gives a wide ambit to the terms ‘treatment’ and ‘process’. Such wide inclusions raises the following important issues:
Job-work under GST v/s repair and maintenance
Mr. A sends his machine for cleaning and painting to prevent it from rusting. Is this activity ‘repair and maintenance’ or ‘job-work’?
Let us make a slight change to above. Mr. A asks a painter to come to his premises for the cleaning and painting. How will this activity be classified now?
Mr. B sends his car for regular service. Is it ‘repair and maintenance’ or job-work?
A few spare parts are used in such service of the car. Will it change the nature of the activity?
The above transactions seem to have characteristics of both job-work and of repair and maintenance. One guiding principle that could help distinguish is whether the activity being performed is essentially to ‘repair and maintain’ the goods or to apply a ‘treatment or process’. Best judgment will be required in reaching the purpose of the contract and the intention of the parties as also the structure of the transaction. Wrong classification could result in tax implications as the rates of tax are different under different heads.
Job-work under GST v/s contract manufacturing
Contract manufacturing is basically outsourced manufacturing. It is essentially different from job work as the material used in the performance of activities in case of job work belongs to the principal, whereas in case of contract manufacturing it belongs to the outsourced manufacturer itself.
However, use of some small and low value supplies by the job worker will not convert it into the activity of contract manufacturing.
Job-work under GST v/s supply of manpower
A frequently-asked question – What if the job-worker comes to the premises of the principal to undertake the treatment or process? Is it a job-work or supply of manpower?
To understand the answer, we need to closely examine the understanding between the parties, following being some of the important considerations –
- Who is holding the risk relating to such goods while the job-work is being carried out?
- Who is having the control over the activity being carried out on the goods?
- What is the manner of consideration?
- Who is exercising control over the persons carrying out the activity?
A careful reading of the agreement between the two parties will be needed to appraise true nature of each and every transaction.
2. Undertaken by a ‘person’
It is not necessary for the job-worker to be a registered person for his activities to be covered under the definition of job-work. This is necessary as the job-workers are generally an unorganized and scattered class. Making it necessary for them to be registered to obtain the tax pass-through would beat the entire objective.
However, a registered job-worker gives his principal an additional advantage of being able to supply the completed goods directly from the premises of the job-worker without having to declare it as his additional place of business.Analysis of Recent Circular On Jobwork Under GST
3. On ‘goods’
For a treatment or process to be covered under the definition of ‘job-work’, it is important that it should be undertaken on ‘goods’. Treatment or process undertaken on immovable property cannot be classified as ‘job-work’. All About Job Work Under GST Regime
Job-work under GST v/s Works Contract
There is no overlapping among the definitions of both these activities as job-work is always in relation to ‘goods’ and never in relation to ‘immovable property’ whereas works contract is always in relation to ‘immovable property’ and never in relation to ‘goods’.
4. Belonging to another ‘registered person’
This phrase is one of the most important parts of the definition. Here, it makes it mandatory for the principal to be a registered person to make this activity fall within the definition of ‘job-work’.
However, what if the principal is unregistered? Will it make the activity of sending of goods for job-work taxable?
The answer is no. Reason being that for a transaction to be taxable under GST, it must have a consideration. For the same reason, return of goods from job-worker also will not be taxable. However, it certainly will raise a question of being includible in the aggregate turnover of both the principal and the job-worker. Further, they might also need to reverse proportionate input tax credit.
The author may be reached at surbhisinghalca@gmail.com.
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