In era of competition every client is looking for complete solution with perfection under one roof. Job work is very common between manufacturer in India. The manufacturing entities instead of carrying out entire operations themselves, outsource few processes to job workers to get the job done faster and more efficient manner.
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. The concept of job work already exists in Central Excise, wherein a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. Many facilities, procedural concessions have been given to the job workers as well as the principal supplier who sends goods for job work.The whole idea is to make principal responsible for meeting compliances on behalf of the job worker on the goods processed by him (job worker), considering the fact that typically the job- workers are small persons who are unable to comply with the discrete provisions of the law.Here we will try to understand Job work provisions under GST.
The GST Act makes special provisions with regard to removal of goods for job-work and receiving back the goods after processing from the job worker without payment of GST. The benefit of these provisions shall be available both to the principal and the job worker.
We can divide this topic as follows:
I. Meaning of
> Job Work
> capital goods
> Tax Invoice
> Delivery Challan
II. Registration by Job Worker
III. Nature of Supply
IV. Procedure for supplying goods to Job Worker
V. Removal of inputs/semi-finished goods/ capital goods by Principal to a Job Worker
VI. Return of goods by Job Worker
VII. Waste and Scrap
VIII. Input Tax Credit (ITC) in case of Job Work
IX. Place of Supply
X. Procedure to be followed, conditions and restrictions
XI. E- Way bill
Job Work under GST Regime
I. Meaning of Job Work
Section 2(68) of the CGST Act, 2017 defines 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.
Hence, for treating anything as job work there ought to be: –
> Two persons;
> The goods should belong to another registered person;
> Treatment or process to be undertaken on the said goods shall be by the job worker, whether registered or not.
But even to an unregistered principal, treatment or process may be carried out and that may still amount to manufacture. Now, ‘repair’ seems to be a ‘treatment or process’ but will NOT be‘job work’. Principal component must be provided in order for the remainder of the components including conversion to amount to ‘job work’. If nothing is provided except instructions to produce, it does not amount of job work.
Job work should not be interchanged with repair activity as both appear to involve ‘treatment or process’ on goods belonging to another. Job work brings into existence a functionality that was not in existence whereas repair restores functionality that was already in in existence before the article became faulty (and needed repairs).
The definition of job work also contemplates that the person i.e. principal should be a registered person. Thus, if some treatment or process is undertaken by a job worker on goods belonging to an unregistered person, it will not be considered as job work as per the above definition.
Therefore, in a case where the principal is not a registered person, the activity may not qualify as job work and may be classified as residual category, if there is no specific rate prescribed, which may attract a different rate of tax.
As per Schedule II Entry No. 3 which reads: “Any treatment or process which is applied to another person’s goods is a supply of services.”
However, Schedule II of the CGST Act which specifies activities to be treated as supply of goods or supply of services, inter alia provides that any treatment or process which is applied to another person’s goods is a supply of services. Such a deeming fiction in respect of job work is given effect to, based on the primary objective of any job work, which is to provide a service.
Also important to note that reference to ‘another registered person’ is missing in Para 3 to schedule II where treatment or process on goods belonging to ‘another person’ is treated as a supply of services.
The job work provisions are facilitative procedures enumerated in law, assessee has choice to opt for the same or not as clarified vide Circular No. 38/12/2018 dated March 26, 2018.
Meaning of Principal
Section 2(88) of the CGST Act, 2017 defines principal: –
“principal” means a person on whose behalf an agent carries on the business of supplyor receipt of goods or services or both;
The law uses the term ‘principal’ in the context of two relationships – one in case of the principal and job worker, and the other in case of principal and agent.
However, in theprovisions relating to job work, the term has a separate meaning, the reference of which isseparately provided for. Therefore, one must understand the meaning of the term ‘principal’ wherever else the term finds a mention, as a reference to the principal-agent relationship.
It is important to note that the job worker is not an Agent of the Principal and the relationship inter se is that of Principal to Principal.
Meaning of Input
Section 2(59) of the CGST Act, 2017 defines Input: –
“input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;
The term “input” is NOT to be equated with the ‘goods’ on a plain and simple observation. The contrast can be explained that ‘input’ are ‘goods supplied as goods’ and not ‘goods (treated to be) supplied as services’. Goods supplied as services will be ‘input services’.
Input, therefore, refers to goods (defined to include actionable claims, growing crops, grass and things attached but agreed to be severed) and excludes capital goods (goods received that are capitalized by recipient).
The second condition for goods to be treated as inputs, is that they must be used or intended to be used by the person who has received those goods ‘in the course or furtherance of business’.
Meaning of capital goods
Section 2(19) of the CGST Act, 2017 defines capital goods: –
“capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;
It is sufficient for any goods which are used or intended for use in the course or furtherance of business to be capitalised in the books of account, to be treated as capital goods under GST.
Accordingly, if a person who is engaged in the sale of laptops capitalises one laptop in the books of account, and such laptop used for business, it will be treated as capital goods under GST law as well. As to ‘how’ capitalization be done is left to the prudence of accounting andthe standards of ICAI on accounting for ‘property, plant and equipment’.
Tax Invoice – A document issued as per Section 31 of the CGST Act, 2017 for removal of goods which are liable tax under GST.
Delivery Challan – A delivery challan is a document prescribed as per Rule 55 of CGST Rules, 2017. Where the goods are removed for the purpose of job work, sale or return or goods are removed for reasons other than by way of supply, this document will be issued.
The following aspects need to be noted:
> Capital goods may be sent for job work, or for the purpose of carrying out the treatmentor process.A job worker is free to effect inward supplies on his own account for carrying out the jobwork. The law does not require that goods applied for the treatment or process mustalso be sent by the registered person on whose goods the job work is undertaken.
> As regards the job worker per se, the law makes no insistence that such person must be a registered person.
> The law requires that the treatment or process undertaken by the job worker must be on goods belonging to “another” registered person.
> From the usage of the term “another” before “registered person”, it is clear that the law intends to segregate the units being different persons, or different registrations.
> The reference to the principal is made by using “another registered person” and not “another person”.
> It may safely be understood that, if one unit of a company supplies goods forfurther processing to another unit of the same company, having a different registration from that of the supplying unit, the unit undertaking the processing activity can be treated as a job worker.
> If the Principal is an unregistered person, then the job worker is not a job worker.Classification of the work undertaken may need to be examined whether it is manufacture or not to attract the appropriate rate of tax applicable to the goods so manufactured and not rate of tax applicable to services of job-work;
> Job work should not be interchanged with repair activity as both appear to involve‘treatment or process’ on goods belonging to another. Job work brings into existence a functionality that was not in existence whereas repair restores functionality that was already in in existence before the article became faulty (and needed repairs).
> It is important to note that the job worker is not an Agent of the Principal and the relationship inter se is that of Principal to Principal.
> Job work need not result in the emergence of a distinct new article. Manufacture is asub-set of job work which is very wide covering ‘treatment of process’.
> Also important to note that reference to ‘another registered person’ is missing in para 3 to schedule II where treatment or process on goods belonging to ‘another person’ is treated as a supply of services.
> A process cannot be considered as job work if principal sends minor inputs to the job-worker and all other inputs/goods utilized in the final product are being procured/purchased by the job-worker. This will defeat the very purpose and idea of job-work.
II. Registration by Job Worker
The job worker shall be liable to be registered under GST in the State / Union territory, from where he makes a taxable supply of services, if his aggregate turnover in a financial year exceeds Rs. 20 lakh/Rs. 10 lakh in special category States.
Further, in terms of the Circular No. 38/12/2018 dated March 26, 2018, it has been clarified that though Clause (i) of Section 24 of the CGST Act, 2017, mandates registration for making inter-state taxable supply irrespective of threshold limit,
Vide Notification No. 10/2017 – Integrated Tax dated October 13, 2017, exemption from mandatory registration was granted in case of supply of services.
Hence, 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.
III. Nature of Supply
As per entry 3 to Schedule II, any treatment or process which is applied to another person’s goods is a supply of services.
Hence, for the purposes of determining the value of the job work charges as per explanation (ii) to section 22 of CGST Act, 2017,
The value of the goods supplied by the principal shall be included in the aggregate turnover of the Principal. This means that as the liability to discharge tax under Section 143 would lie on the principal not on the job worker, the job worker would not include the same in his value for the purpose of calculating the threshold limits.
But in a case where an unregistered job-worker receives goods from an unregistered principal then this benefit will not be available to him, the activity may not qualify as job work and may be classified as residual category, and value of the supply of goods of unregistered principal, after completion of job work, by the job-worker shall be treated as the supply of goods by him and the value of such goods shall be included in the aggregate turnover of the job worker. As a result, the job-worker’s aggregate turnover may cross the threshold and become liable to be registered.
IV. Procedure for supplying goods to Job Worker
1. Section 143 of the CGST Act, 2017 deals with job work procedure.
The principal may under intimation send any inputs, semi-finished goods or capital goods without payment of tax to a job worker for job work and from there subsequently send to another job worker and likewise.
2. The principal is required to file Form GST ITC-04 by the 25th day of the month succeeding the quarter. The said form will serve as intimation as envisaged under section 143 of the CGST Act, 2017.
Further, this requirement of filing Form GST ITC-04 has been withdrawn vide Notification 38/2019 Central Tax dated August 31, 2019, for the period July 2017 to March 2019. At the same time, the Form GST ITC-04 for the period April 2019 to June 2019 shall be filed with document-wise details of opening balance of goods available with the Job worker.
3. As per Rule 45 of the CGST Rules, 2017, the principal can send goods for job work purpose without payment of GST under the cover of delivery challan and it shall contain the details as specified in Rule 55 of the CGST Rules, 2017.
4. Documents required to be issued for sending the goods:
(i) By principal to the job worker–
> The principal shall prepare delivery challan in triplicate,
> two copies of which may be sent to the job worker along with goods.
> The job worker should send one copy of the said challan along with the goods, while returning them to the principal.
(ii) From one job worker to another job worker–
> Goods may move under the cover of a challan issued either by the principal or the job worker.
> Alternatively, the challan issued by the principal may be endorsed by the job worker indicating the quantity and description of goods being sent.
(iii) From the job worker back to the principal–
> The job worker should send one copy of the challan received by him from the principal.
(iv) In piecemeal by the job worker–
> The challan issued originally by the principal cannot be endorsed and a fresh challan is required to be issued by the job worker.
5. As per third proviso to Rule 138 of the CGST Rules, 2017 it is compulsory that when the principal and the job worker are situated inter-state, job work transactions, e-way bill must be generated for inter-state movement of goods irrespective of the monetary limit.
6. For E-way Bill provisions relating to movement of goods Outward and Inward on account of job work, rules regarding E-way Bill under GST will be followed.
7. As per Sections 19(2) (Inputs) and 19(5) (Capital Goods) of CGST Act, 2017, the principal can also send goods directly to the place of job worker without receiving the said goods in his premises first and Input
Tax Credit can also be availed in such cases though the principal has not received the goods directly but received at job workers place.
It is clarified by Circular No. 38/12/2018, that goods may be moved from the place of business of the supplier to the place of business/premises of the job worker with a copy of the invoice issued by the supplier in the name of the principal wherein the job worker’s name and address should also be mentioned as the consignee, in terms of Rule 46(o) of the CGST Rules, 2017.
The buyer (i.e., the principal) shall issue the challan under Rule 45 of the CGST Rules, 2017 and send the same to the job worker directly as mentioned above.
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 and the principal shall issue the challan under Rule 45 of the CGST Rules and send the same to the job worker directly.
8. On the job work charges, GST will be charged by the job worker if the job worker is registered. Input Tax Credit of the same can be availed by the principal.
V. Removal of inputs/semi-finished goods/ capital goods by Principal to a Job Worker:
(i) Inputs/ Semi-finished goods
(a) The principal can send inputs (including intermediate goods) for job work purpose without payment of GST but the same should be received back within 1 year of goods being sent out. Further, Inputs after job work activities can be received back at any of the place of business of the principal. Therefore, inputs can be received back at the principal place of business or even at any of the place registered as an additional place of business.
(b) In case the inputs are sent directly to a job worker, the period of 1 year shall be counted from the date of receipt of inputs by the job worker. The bill to ship module be followed
(c) When such inputs are further sent by one job worker to another, then the entire process of job work from more than one job worker shall be considered for computing the period of 1 year.
(d) The period of 1 year shall, on sufficient cause being shown, be extended by Commissioner for a further period of 1 year.
(e) If the inputs are not received back within 1 year, then the same shall be treated as “supply” from the date the said inputs were sent out. The said supply shall have to be declared in FORM GSTR-1 and the principal shall be liable to pay the tax along with applicable interest.
(ii) Capital Goods
(a) The principal can send capital goods for job work purpose without payment of GST but the same should be returned within 3 years of their being sent out. Capital Goods can be received back at any of the places of business of the principal. Therefore, capital goods can be received back at the principal place of business or even at any of the places registered as additional place of business.
(b) In case the capital goods are sent directly to a job worker, the period of 3 years shall be counted from the date of receipt of capital goods by the job worker.
(c) When such capital goods are further sent by one job worker to another, then the entire process of job work from more than one job worker shall be considered for computing the limit of 3 years.
(d) The period of 3 years shall, on sufficient cause being shown, be extended by Commissioner for a further period of 2 years.
(e) If the capital goods are not returned within 3 years, then the same shall be treated as “supply” from the date the said capital goods were sent out. The said supply shall be declared in FORM GSTR-1 and the principal shall be liable to pay the tax along with applicable interest.
(iii) Moulds and dies, jigs and fixtures, or tools
(a) The principal can send moulds and dies, jigs and fixtures, or tools for job work purpose without payment of GST.
(b) The above time limit of 1 year / 3 years for receiving back the said goods will not apply to moulds and dies, jigs and fixtures, or tools
VI. Return of goods by Job Worker
1. After completion of the job work, the job worker shall return the said goods to the principal’s premises under delivery challan and prepare his invoice for job work charges.
2. While returning the goods after completion of job work, to the principal, the job worker should send one copy of the challan received by him from the principal. If the goods 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.
3. Further, after the completion of job work, such goods can be directly supplied from the place of the job worker to the customer if: –
(a) the job worker is registered; or
(b) the job worker is not registered but his place of business is declared as additional place of business by the principal.
4. The supply of goods, after completion of job work, by a registered job worker shall be treated as the supply of goods by the principal and the value of such goods shall not be included in the aggregate turnover of the registered job worker.
5. The job worker can further send such inputs or capital goods, without payment of tax, to another job worker under the cover of delivery challan or by endorsing the challan issued by the principal as per Rule 55 of the CGST Rules, 2017.
6. In case where inputs, semi-finished goods and capital goods are not returned to principal as per prescribed time limit, the same will be treated as supply of the principal.
It is clarified in the Circular No. 38/12/2018 that the principal would issue 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 or extended period has expired. The principal is required to pay GST along with interest considering the supply was made by the principal to the job worker when the principal had sent the goods first for job work.
7. Value of such deemed supply will be the value declared in the challan by the principal while sending the goods to job worker i.e., without including cost of transportation and job work charges.
8. Where goods are sent to job worker and same are lost/ destroyed due to some unavoidable circumstances, goods will not be returned by the job worker. If goods are lost, whether the principal is required to reverse credit under section 17(5)(h) or it will be deemed supply as per section 19(3) is the moot question. Since goods are lost or destroyed, section 17(5) (h) will be applicable and the principal is required to reverse the credit on inputs or capital goods, and it will not be treated as deemed supply.
9. If due to some dispute between a principal and a job worker, goods are not returned by the job worker as consideration for his job work charges, the issue of valuation arises when the job worker sells the same goods in open market. It is a well settled position in earlier laws that the valuation for the same goods should be considered transaction value by the job worker and not market value of the said goods by the principal. The same was decided by Hon’ble Supreme in the case of Pawan Biscuits & Co. [2000 (120) ELT (24)].
VII. Waste and Scrap
Waste & Scrap generated during job work can be supplied as under:-
(i) If the job worker is registered, then it can be supplied by the job worker directly from his place of business, on payment of appropriate tax applicable on the said waste / scrap.
(ii) If he is not registered, then the waste / scrap generated should be returned to the principal along with the goods and such waste / scrap would be supplied by the principal on payment of tax. Alternatively, the principal may supply waste / scrap directly from premises of the job worker under his invoice on payment of tax.
(iii) An issue may arise on the quantum of scrap. It might be possible that during the job work, scrap may be generated in less than normal quantity. In such a case, the department cannot ask for GST on higher value of scrap provided that the principal is not allowing scrap more than what is generated. Pearl soap & Co. 187 ELT 460 CESTAT – Mumbai.
(iv) The principal should also maintain proper records of clearance of waste / scrap from the premises of the job worker.
VIII. Input Tax Credit (ITC) in case of Job Work
1. As per Section 19(1) of CGST Act, 2017, the principal is allowed to take credit on inputs / capital goods sent to the job worker.
2. As per Section 19(2) and Section 19(5) of CGST Act, 2017, ITC can be availed by the principal even if such inputs / capital goods are not being first received by the principal and are directly sent to the job worker.
3. In case goods are not returned in prescribed period and treated as deemed supply as per section 19(3) then question arises as to whether the job worker is eligible for availing credit of the GST paid by the principal by considering the same as deemed supply as per section 19(3) of the CGST Act, 2017.
As per section 16(4) “A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier”.
As mentioned earlier where goods are not returned in prescribed period, the principal has to issue invoice 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. Since date of invoice will be of current period, the job worker is eligible to avail the credit of the same.
Moreover, as per second proviso to section 16(2) of the CGST Act, 2017 the job worker has to pay the said amount to the principal. The same may be done by way of making payment in cash or returning the said goods as supply of the job worker. For this, the job worker has to raise his own tax invoice stating principal as buyer.
IX. Place of Supply
So far as job work is concerned, supply for job work charges is governed by section 12 (2) of IGST Act, 2017.
When the registered job worker and the principal are in different States and goods are removed directly from the place of the job worker :-
(i) If the principal (supplier of the goods) and recipient (buyer of the goods) are in the same State, then SGST and CGST shall be levied, though the job worker is in a different State.
(ii) If the principal and recipient are in different States, then IGST shall be levied, even though the recipient is in the State where the job worker is situated.
X. Procedure to be followed, conditions and restrictions
1. 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. The format of a delivery challan.
2. Delivery challan is required even if such inputs / capital goods are sent directly to a job-worker.
3. The delivery challan shall be prepared in triplicate, in the following manner:–
(a) The original copy marked as ORIGINAL FOR CONSIGNEE;
(b) The duplicate copy marked as DUPLICATE FOR TRANSPORTER; and
(c) The triplicate copy marked as TRIPLICATE FOR CONSIGNER.
4. The details of following challans issued during a quarter shall be furnished in FORM GST ITC-04 , on or before the 25th day of the month succeeding the said quarter and will be treated as intimation. Details required to be furnished by the principal are:-
(i) Goods dispatched to a job worker, and
(ii) Goods received from a job worker, or
(iii) Goods sent from one job worker to another, or
(iv) Goods directly supplied from the premises of job worker 5. Details of delivery challan generated by the principal for the job work are also required to be furnished in Form GSTR-1 (Return of details of outward supplies of goods or services).
5. In terms of section 143(2) of CGST Act, 2017 the principal shall be responsible for keeping proper accounts for the inputs or capital goods or waste / scrap lying with the job-worker.
XI. E- Way bill:
In terms of Rule 138 of CGST Rules, where principal and job worker are located in the different States, E-way bill mandatory for inter-State movement without considering threshold limit of Rs.50,000/-.
For intra-State movement, EWB is mandatory when consignment value exceeds Rs.1,00,000 limit (in
a) West Bengal
b) Tamil Nadu
and in other states and union territories when consignment value exceeds Rs.50,000/-
While returning goods after completion of job work to principal’s premises, either the principal or job worker or transporter can raise E- way bill. It is to be noted that the waybill is required for “every movement” and not “every supply”.
|Format of Delivery Challan
Original for Recipient
Duplicate for Transporter
Triplicate for Supplier
|Company Name :||Date:|
Challan No. :
Contact Number / Email
To (Details of Consignee):
|Place of Supply :||Date of Supply:|