Analysis of CBEC Circular No. 38/12/2018 related to Job Work

“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. The registered person on whose goods (inputs or capital goods) job work is performed is called the “Principal” for the purposes of section 143 of the CGST Act.

It may be noted that the responsibility of keeping proper accounts of the inputs and capital goods sent for job work lies with the principal. Further, the responsibility for sending the goods for job work as well as bringing them back or supplying them has been cast on the principal.

CBEC received various representation regarding the procedures to be followed for sending goods for job work and the related compliance requirements for the principal and the job worker.

Therefore, through its Circular no. 38/12/2018 dated 26th March, 2018, CBEC clarified following important issues with respect to Job-work Transactions.

A. Scope of Job Work: Job work is a treatment or process undertaken by a person 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, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Author’s observation: Job work can be either a pure service such as packing, labelling, etc where inputs supplied by Principal are put together as per specification or it can be a work contract service such as stitching, washing, etc where primary input/semi-finished goods are supplied by Principal and job-worker also applies own goods to complete the service.

B. Requirement of registration for the principal/ job worker: It is important to note that the provisions of GST Act relating to job-work are applicable to a registered person. Further, it is his choice whether or not to avail benefit of these special provisions.

It is also clarified that a job worker is required to obtain registration only in cases where his aggregate turnover, to be computed on all India basis, in a financial year exceeds the threshold limit regardless of whether the principal and the job worker are located in the same State or in different States.

Author’s observation: Principal is not required to obtain registration if its turnover does not exceed threshold limit. In such case, special provisions of GST Act relating to job-work will not apply.

Entity providing job-work services shall calculate turnover of all the goods and services supplied by them rather than turnover of only job-work services to determine whether it is required to obtain registration.

C. Supply of goods by the principal from job worker’s place of business / premises: The supply of goods by the principal from the place of business / premises of the job worker will be regarded as supply by the principal and not by the job worker.

Author’s observation: Even though finished goods are supplied to principal’s customer from job-workers premises, the value of such supply will not be included in turnover of job-worker.  Moreover, for the generation of E-way bill, Principal shall remain responsible. 

D. Movement of goods from the principal to the job worker and the documents and intimation required therefor: 

Rule 45 of the CGST Rules provides that inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a delivery challan issued by the principal, including in cases where such goods are sent directly to a job worker.

The principal is also required to file FORM GST ITC-04 every quarter stating details of inputs, semi-finished goods and capital goods transferred to job-worker, sent from one job worker to another job worker, directly sold from premises of job-worker and received back from job-worker.

Further, as per the provisions of 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).

Further, it is provided that the e-way bill shall be generated either by the principal or by the registered job worker irrespective of the value of the consignment, where goods are sent by a principal located in one State/Union territory to a job worker located in any other State/ Union territory.

Author’s observation: Delivery challan and E-way bill are the documents to be accompanied with every transfer of goods between Principal and Job-worker. Following the special procedures for job-work entails furnishing of additional quarterly return in FORM GST ITC-04.

(i) Where goods are sent by principal to only one job worker: The principal shall prepare in triplicate, the challan in terms 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.

(ii) 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 principal while returning the goods to the principal after carrying out the job work. 

Author’s observation: In fact 4 copies of delivery challan should be prepared, 1 for self, 1 for transporter and 2 for job-worker. Out of the 2 copies, 1 copy shall be returned by job-worker at time of returning goods to principal. A copy of delivery challan so received from job worker should be preserved along with originally prepared delivery challan.

(iii) Where goods are sent from one job worker to another job worker: 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.

Author’s observation: Transfer from one job worker to another through endorsement of principal’s delivery challan would relieve job work service providers from additional documentation.

(iv) Where the goods are sent directly by the supplier to the job worker: In this case, the goods may move from the place of business of the supplier to the premises of the job worker with a copy of the invoice issued by the supplier in the name of the buyer (i.e. the principal) wherein the job worker’s name and address should also be mentioned as the consignee. In case of import of goods by the principal which are then supplied directly from the customs station of import, the goods may move from the customs station of import to the place of business/premises of the job worker with a copy of the Bill of Entry. The buyer (i.e., the principal) shall issue the delivery challan under rule 45 of the CGST Rules and send the same to the job worker directly in terms of para (i) above.

Author’s observation: In case of direct delivery of goods by supplier to job-worker, while supplier’s invoice and/or bill of entry shall contain name and GSTIN of Principal, the principal is required to issue delivery challan to job-worker.

(v) 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.

Author’s observation: Transfer of goods in small quantities would require job-worker to issue fresh challans along with goods. However, it is advisable to mention unique reference no. of principal’s delivery challan in each fresh challan issued.

(vi) Submission of intimation: The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act.

E. Liability to issue invoice, determination of place of supply and payment of GST: In response to doubts raised about the time, value and place of supply in the hands of principal or job worker as also about the issuance of invoices by the principal or job worker, following is clarified:

(i) Supply of job work services: 

The job worker, as a supplier of services, is liable to pay GST if he is liable to be registered. He shall issue an invoice at the time of supply of the services as determined in terms of section 13 read with section 31 of the CGST Act.

The value of services would include not only the service charges but also the value of any goods or services used by him for supplying the job work services, if recovered from the principal. Further, it is clarified that 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.

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.

Author’s observation: (1) The cost of moulds, dies, jigs and fixtures, etc will have to be expressly apportioned by job worker while determining price to be charged to principal. (2) Services of unregistered job worker will attract GST under reverse charge, however such tax under reverse charge has been exempted till 30th June, 2018.  

(ii) Supply of goods by the principal from the place of business/ premises of job worker: 

Since the supply is being made by the principal, it is clarified that the time, value and place of supply would have to be determined in the hands of the principal irrespective of the location of the job worker’s place of business/premises.

Further, the invoice would have to be issued by the principal. It is also clarified that in case of exports directly from the job worker’s place of business/premises, the LUT or bond, as the case may be, shall be executed by the principal.

Illustration: The principal is located in State A, the job worker in State B and the recipient in State C. In case the supply is made from the job worker’s place of business / premises, the invoice will be issued by the supplier (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.

Author’s observation: Firstly, if principal wishes to supply goods directly from job worker’s premises, either job worker should be registered under GST or principal will have to add job-worker’s premises as its “additional place of business” in case job worker is unregistered under GST. Secondly, whether or not job worker is registered, time, value and place of supply of goods will be determined as if goods are supplied by principal.

(iii) Supply of waste and scrap generated during the job work: 

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 (ii) above would apply mutatis mutandis in this case.

Author’s observation: If waste and scrap are sold by unregistered job worker, it would be treated as if same has been sold by principal and accordingly, principal shall be liable to GST.

F. Violation of conditions laid down in section 143: If the inputs or capital goods are neither returned nor supplied from the job worker’s place of business / premises within the specified time period, the principal would issue an invoice for the same and declare such supplies in his return for that particular month in which the time period of one year / three years has expired. The date of supply shall be the date on which such inputs or capital goods were initially sent to the job worker and interest for the intervening period shall also be payable on the tax.

If such goods are returned by the job worker after the stipulated time period, the same would be treated as a supply by the job worker to the principal and the job worker would be liable to pay GST if he is liable for registration

Author’s observation: It is important to note that if goods or capital goods are not returned/sold within one year / three year, principal need to issue tax invoice in month in which one year / three years expire and include such invoice in GST returns of that month. However, interest on GST has to be paid from date of actual supply to job worker.

G. Availability of input tax credit to the principal and job worker: 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 of the principal. It is also clarified that the job worker is also eligible to avail ITC on inputs, etc. used by him in supplying the job work services if he is registered.

Author’s observation: Special provisions under GST for job-work transactions do not restrict input tax credit either on part of principal or job-worker has been provided under. However, input tax credit shall be subject to general conditions and restriction  provided under GST Act.

Conclusion: This circular essentially clarifies procedures to be followed for job work transactions and efficient implementation of these procedures and adequate documentation will go long way in avoiding unnecessary litigation. 

This article is for the purpose of general awareness and does not represent professional opinion of the author.

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