Procedure for Job Work under Rule 4(5)(a) made assessee friendly

CA Pradeep Jain,CA Neetu Sukhwani & Brijendra Sankhla

Introduction:- The Budget 2015 has made amendments that that seeks to simplify the procedural aspects and put an end to the flimsy issues that have led to litigation in the past. One such issue that was frequently disputed by the revenue authorities was the availment of cenvat credit on the inputs/capital goods directly sent to a job worker without their being first brought to the premises of the manufacturer or provider of output service. It appears that the Hon’ble Finance Minister, Mr. Arun Jaitley, being himself associated with the profession of lawyer, has made endeavour to put an end to unnecessary litigations. The present article is an attempt to discuss the procedural changes made in the procedure of job work under Rule 4(5)(a).

Earlier provision regarding job work of Inputs goods and Capital goods are as under:-

Under earlier Rule 4(5)(a) of Cenvat Credit Rules, the Cenvat credit was allowed even if any inputs or capital goods as such or after being partially processed were sent to job worker for further processing, testing, repair, re-conditioning (or for the manufacture of intermediate goods necessary for the manufacturing of final products) or any other purposes, and it was established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service, taking the cenvat credit that the goods are received back in the factory within one hundred and eighty days of their being sent from the factory or premises of the provider of output service, as the case may be. And if the inputs or the capital goods were not received back within one hundred eighty days, the manufacturer or provider of output service was required to pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service could take the CENVAT credit again when the inputs or capital goods were received back in his factory or in the premises of the provider of output service.

Accordingly, there was combined provision for inputs and capital goods for processing on job work. However, the above referred Rule 4(5)(a) has been substituted vide the Budget, 2015. The substituted Rule 4(5)(a) reads as follows:-

“(a) (i) The CENVAT credit on inputs shall be allowed even if any inputs as such or after being partially processed are sent to a job worker and from there subsequently sent to another job worker and likewise, for further processing, testing, repairing, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the CENVAT credit that the inputs or the products produced therefrom are received back by the manufacturer or the provider of output service, as the case may be, within one hundred and eighty days of their being sent from the factory or premises of the provider of output service, as the case may be:

Provided that credit shall also be allowed even if any inputs are directly sent to a job worker without their being first brought to the premises of the manufacturer or the provider of output service, as the case may be, and in such a case, the period of one hundred and eighty days shall be counted from the date of receipt of the inputs by the job worker;

 (ii) the CENVAT credit on capital goods shall be allowed even if any capital goods as such are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the CENVAT credit that the capital goods are received back by the manufacturer or the provider of output service, as the case may be, within two years of their being so sent:

Provided that credit shall be allowed even if any capital goods are directly sent to a job worker without their being first brought to the premises of the manufacturer or the provider of output service, as the case may be, and in such a case, the period of two years shall be counted from the date of receipt of the capital goods by the job worker;

(iii) if the inputs or capital goods, as the case may be, are not received back within the time specified under sub-clause (i) or (ii), as the case may be, by the manufacturer or the provider of output service, the manufacturer or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods, as the case may be, by debiting the CENVAT credit or otherwise, but the manufacturer or the provider of output service may take the CENVAT credit again when the inputs or capital goods, as the case may be, are received back in the factory or in the premises of the provider of output service.”

Implications of amendment:- Following are the effects of the amendment made in the job work procedure:-

1. Earlier, there was common rule for inputs and capital goods being sent for job work and the time limit for both was specified as 180 days. But now there is separate provision for both. This change has been made probably looking into the practical difficulties in receiving the capital goods sent for job-work back within a period of 180 days. The amended provision provides that the inputs sent for job work should be returned to principal within 180 days and if the same is not returned within the specified period of 180 days, then the cenvat credit is to be reversed and the credit can be taken again when the goods are returned back by job worker. However, for the capital goods sent for job work, the time limit has been increased from 180 days to 2 years. This may be for the reason that the capital goods are required for a longer duration then inputs.

2. The provisions regarding receipt of inputs and capital goods directly by the job worker has been introduced in the amended Rule. Though there were no such provisions in the earlier Rule but there were circulars which allowed the movement of inputs/capital goods directly to the premises of the job worker. In this regard, reliance may be placed on the Circular no. 265/99/96-CX, dated 12-11-1996 wherein it was clarified that there is no need to reverse credit if the goods are directly sent to the job worker and rather proper prescribed procedure should be followed by the assessee according to which as and when the goods were received by job worker, he was informing the principal and he was issuing the challan. It is good that the procedure has been prescribed in the rules itself. Henceforth, there will not be any scope of ambiguity.

3. Earlier there was no provision in Cenvat credit Rules to take the credit when the goods directly moved to job worker. The Rule was that the credit will be allowed only when the goods are received in the factory. But now there is specific provision in Cenvat credit Rules that the credit will be allowed even if the goods are received in the premises of job work. Hence the credit will be allowed earlier. This is welcome step by the Government.

4. It is also worth observing that earlier, the sub-rule (2) of the Rule 4(5)(a) provided that the cenvat credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer or final products to another manufacturer for the production of goods or a job work for the production of goods on his behalf thereby meaning that they were not covered under the capital goods provision and the time limit of 180 days was not applicable on them. However, no such distinction has been made in the new rule, due to which one may conclude that the time limit of 2 years will be applicable for them as is made applicable for capital goods. It is worth observing that the moulds, jigs, dies etc. are tools that are used over a period of time and so it has been assumed that they will fall under the time limit applicable for the capital goods. However, practically the moulds are in the nature of consumables and become useless after a particular span of life.

5. It may also be noted that there is nothing specified about the clearance of goods from the premises of the job worker. The permission is to be taken from department and the department may impose the conditions as desired in this regard. But the author of this article has not come across any circular in this regard and department prescribes different procedures and numerous conditions. If the procedure for the same was also prescribed in Rule itself then the divergent practices adopted by the department presently could have been avoided.

Click to Read Other Articles of CA Pradeep Jain & His Team Members