In current business scenarios it is not possible for manufacturing industry to carry out all the processes within its own premises. In such a condition manufacturing unit will have to get work done from others.
Job work industries constitute a significant sector in Indian Economy. Most of the manufacturing entities operated in different sectors outsource their work to another entity for gaining competitive advantage and making their product or services cost effective and economical.
In current scenarios, Job work Industry are indispensable arm of Industrial Sector and large part of SME involved in it.
The concept of Job work is not a newbie in GST boundary. The same also covered and dealt with in the era of erstwhile Excise and Service Tax regime.
In this article we are going to discuss when the transaction has to be classified as Job work or manufacture.
Job Work under GST Act
A. Definition: Section 2(68) of CGST Act 2017 defines job work as under;
“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”
Entry 3 of Schedule II mentioned any treatment or process which is applied to another person’s goods is treated as supply of service.
From above it is evident that Job work is a process carrying out on goods provided by some another person. For treating anything as job work there ought to be:
C.Conditions to be fulfilled for sending any Inputs or capital goods without payment of tax:
a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment oftax;
b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case maybe:
Job Work Under erstwhile Excise and Service Tax
A. Definition: Rule 2(h) of Cenvat Credit Rules 2004 describes Job Work as under;
“job work” means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression “job worker” shall be construed accordingly;
Further explanation of Notification No. 214/86 dated 25.03.1986 provides Job work as under:
“job work” means processing or working upon of raw materials or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.
Recently in case of M/s JSW Energy Limited (JEL) engaged in the business of generation of Power and M/s JSW Steel Limited (JSL) engaged in the business of manufacture and supply of steel.
Both parties entered into a job work agreement for supply of coal or any other Inputs by JSL to JEL. JEL would undertake certain process and convert the said Inputs into power. The applicant i.e. JEL sought out ruling in the following matter;
i. Supply of Coal or any other Inputs on Job work basis by JSL to JEL
ii. Supply of Power by JEL toJSL
iii. Job work charges payable by JSL to JEL
In the said ruling the authority observed that emergence of a new product from the processing of the Inputs amounts to manufacture of Product on the following basis.
1. The activity of manufacture has been defined under GST law asunder:
“‘Manufacture’ means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term ‘manufacturer’ shall be construed accordingly;”
2. Job work in GST Act uses the word ‘treatment or process’. The activity for converting Coal and other Inputs into power would not be covered into the treatment or process. The aforesaid activity result into production of distinct commodity. The said activity is manufacturing activity i.e. generation of electricity.
3. Applicant will also add air and water on its account, which are of considerable volume and cost for generation of electricity whereas in case of Job work, Job worker contribute mainly their labor and skills done with the help of their own gadgets and machinery. However,a job worker can make addition of minor items like a tailor stitching shirts out of clothes send by principal can use its own thread and buttons. It cannot defiance the nature of job work.
4. Further, the condition of Job work process has not been fulfilled as stipulated in section 143(1)(a) of CGST Act for bringing back the Inputs after completion of Job work or otherwise or capital goods other than moulds and dies, jigs and fixtures or tools within one year and three years respectively, of their being sent
Accordingly, the authority ruled out that the transaction between JEL to JSL is a transaction of Supply of goods and not a Job Work.
Aggrieved with the impunged order applicant challenge the same before Appellate authority.
Applicant provides reference of the Supreme Court Judgment of M/s Indorma Textiles Limited where it was held that Electricity can be generated on the Job work basis. It is further provides that when electricity can be generated on job work basis, it is bound to happen that any inputs sent for generation of electricity would not be sent back in same original form.
Further, the coal supplied by JSL to JEL is a main input for JSL which is used for manufacture of steel product as the coal proposed sent back by JEL in form of electricity which is used for manufacture of steel product. The definition of Input widely cover coal as Inputs sent by JSL to JEL.
Hence, the appellate authority ruled out that activity for generation of electricity on Coal and other Inputs supplied by JSL to JEL will be construed as Job work rather than manufacture.