Complexities of sending goods for Job work- Filing of Form GST ITC- 04

Job- work is an important part of a business’s manufacturing processes. Legal definition of the term ‘Job- work’ as given in Section 2 (68) is- ‘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 AI- model ‘Google Gemini’ describes job work as “Job work refers to a situation where a business (the principal) outsources part of its production process to another company (the job worker). The job worker uses the principal’s materials or supplies to create a finished product or complete a specific stage of production.”

Therefore, as per legal definition the principal manufacturer is registered under the GST law. Job worker may or may not be registered in GST. This does not hinders the job- work process.

One important aspect of job- work is keeping a proper record of items sent for job work and simultaneously a record of items that came back from job work.

In this article, we shall discuss the relevance of record keeping of job- work and filing of Form ITC GST- 04 which is a very important aspect of job- work from GST perspective.

What is Form GST ITC-04?

Form GST ITC- 04 is a declaration form which is to be furnished by registered persons (Principal), reflecting the details of inputs or capital goods sent to or received from a job worker or supplied directly from the premises of job- worker itself, in an applicable tax period.

Who needs to file ITC-04?

Any registered person under GST who sends goods (inputs or capital goods) for job work to a job- worker shall timely file ITC- 04.

To understand the importance of filing of Form GST ITC- 04, first we must understand the basics of job work provisions in GST.

Applicable law for sending inputs/ capital goods on job- work

Section 19 & Section 143 of the CGST Act, 2017 read with Rule 45 of the CGST Rules, 2017 provide specific set of conditions for inputs/ capital goods to be sent for job- work. Let’s breakdown the same in simple points:

• Inputs/ capital goods can be sent by a registered person for job work without payment of any tax. ITC can also be availed on such goods. (ITC available even when goods directly sent from seller to job worker)
• The goods shall be sent under the cover of a proper ‘Job- work’ challan. Format of challan to be as per Rule 55 of the CGST Rules, 2017.
• The goods so sent are to be brought back, after job work completion, to principal’s place of business within a certain time limit.
• For inputs, the time limit is 1 year. (1 more year, if extended by Commissioner).
• For capital goods, this time limit is 3 years. This will not apply to moulds & dies, jigs & fixtures. (2 more years, if extended by Commissioner)
• If the goods are not being brought back, the same can be supplied on payment of tax or exported out of India within the said time limits.
• If the goods are neither brought back nor supplied within the specified time limits, tax will be payable on such transactions treating the same as sale from principal to job worker as on the date on which the goods were originally sent to the job- worker. This will be declared in GSTR- 1 of the principal and tax shall be paid on the same.
• Mandatory for the principal to keep proper records of these movements.
• Goods can be further sent from 1st job worker to another job worker after endorsement of challan.
• Challans to be in specific serial number,
• Challans are important as the same will be reported in Form GST ITC- 04.

Frequency of filing ITC-04 

The frequency of filing ITC-04 depends on the annual aggregate turnover of the registered person in the preceding financial year.

• Registered person with an annual aggregate turnover of more than Rs. 5 crore – Half-yearly (April-September and October-March) due on 25th of October and April respectively.

• Registered person with an annual aggregate turnover of up to Rs. 5 crore – Annually (from FY 2021-22 onwards) due on 25th of April.

The ITC- 04 form is to be filed online on the GST portal.

Importance of filing Form GST ITC- 04 

This form is of utmost importance as through this form one can extract details of goods which have been sent to job worker but have not been timely brought back/ supplied directly and accordingly the same can be taxed in GST returns.

How to file Form GST ITC- 04? 

• Login to the GST portal. Go to Services > Returns > ITC Forms.
• Select “Prepare Offline” and upload challans through offline utility. Cross check and file the form.
• Note that challans in this ITC- 04 can be uploaded through .json file generated from offline utility.
• No preview or PDF file can be generated in this return so the filer will have manually check the amount online.

Potential Issues while filing Form GST ITC- 04

Here are some potential practical issues you might encounter while filing form GST ITC-04:

Data Collection and Record Keeping: Matching Challans: Ensuring you have all the challan from the job worker for the supplied goods and the processed goods received back can be time-consuming, especially if the job involves multiple stages or materials.

Detailed Records: The form requires details like GSTIN of job worker, challan number and date, type of goods, quantity, and tax rate. Maintaining clear and organized records for these details is crucial to avoid errors and delays during filing.

Timely Filing, Meeting Deadlines: The deadlines for filing ITC-04 (half-yearly or annually) can be easy to miss, especially during busy periods. Setting reminders and having a system in place for timely filing is important to avoid penalties.

Technical Issues, GST Portal Glitches: The GST portal can experience technical glitches or downtime occasionally, which might disrupt the filing process and cause delays.

Software Issues: If you’re using accounting software that is unable to track goods movement of job work, it may lead to data errors during filing.

No PDF preview to cross check uploaded data: It is important to note that unlike normal GST returns (GSTR_ 1, 3B), this form does not provides any PDF preview to cross check uploaded data. One can only check online as to what has been uploaded.

Tips to Minimize Practical Issues:

Maintain Organized Records: Keep a dedicated system for storing challans, job work details, and other relevant documents related to ITC-04 filing.

Automate Data Entry (if applicable): Consider using accounting software that integrates with the GST portal for easier data upload and filing ensuring proper data validation at the same time.

Set Reminders and Deadlines: Schedule reminders for upcoming filing deadlines to avoid last-minute rushes.

Seek Clarification: If you’re unsure about any aspect of job work or ITC-04 filing, consult a tax advisor for specific guidance.

Penalty/ Late Fee for delayed or non- filing of Form ITC- 04

It is very important to note that there isn’t a specific penalty or late fee designated for delayed/ non- filing of Form ITC-04 under the GST Act.

And in absence of any specific penalty, General Penalty: Section 125 of the GST Act allows the authorities to impose a general penalty of up to Rs. 25,000 for contravening any provision of the Act or the rules made thereunder. This means a delay in filing ITC-04 could attract this penalty even though there’s no specific mention.

However, in our opinion, as delayed or non- filing of this form does not results in any direct revenue loss to the government, such a heavy penalty is totally unwarranted for.

Still, the decision to impose a penalty and its amount lies with the GST authorities. They might consider factors like the duration of delay, the reason for delay, and your past compliance record before deciding on a penalty (if any).

Here’s what you can do to minimize the risk: 

File at the earliest: It’s always best to file ITC-04 within the stipulated deadlines to avoid any potential issues.

Seek Professional Advice: If you’re unsure about the implications of delayed filing or have specific concerns, consulting a tax advisor can be helpful.

Remember, complying with GST regulations is crucial to avoid penalties. While there might not be a specific fixed penalty for late ITC-04 filing, the general penalty provision exists. It’s best to prioritize timely filing for a smoother GST compliance process.

Relevant legal provisions are as follows: 

Section 19. Taking input tax credit in respect of inputs and capital goods sent for job work.-

(1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job worker for job work.

(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.

(3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out:

Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker.

(4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on capital goods sent to a job worker for job work.

(5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business.

(6) Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out:

Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker.

(7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.

Explanation. – For the purpose of this section, “principal” means the person referred to in section 143.

Section 143. Job work procedure.-

(1) A registered person (hereafter in this section referred to as the “principal”) may under intimation and subject to such conditions as may be prescribed, send any inputs 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, and shall,-

(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 of tax;

(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 may be:

Provided that the principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job worker as his additional place of business except in a case –

(i) where the job worker is registered under section 25; or

(ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner:

Provided further that the period of one year and three years may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding one year and two years respectively.

(2) The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.

(3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise in accordance with the provisions of clause (a) of sub-section (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause

(b) of sub-section (1) within a period of one year of their being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out.

(4) Where the capital goods, other than moulds and dies, jigs and fixtures, or tools, sent for job work are not received back by the principal in accordance with the provisions of clause (a) of subsection (1) or are not supplied from the place of business of the job worker in accordance with the provisions of clause (b) of sub-section (1) within a period of three years of their being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out.

(5) Notwithstanding anything contained in sub-sections (1) and (2), any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered.

Explanation.-For the purposes of job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker. 

Rule 45. Conditions and restrictions in respect of inputs and capital goods sent to the job worker.-

(1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a jobworker, and where the goods are sent from one job worker to another job worker, the challan may be issued either by the principal or the job worker sending the goods to another job worker:

Provided that the challan issued by the principal may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal:

Provided further that the challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.

(2) The challan issued by the principal to the job worker shall contain the details specified in rule 55.

(3) The details of challans in respect of goods dispatched to a job worker or received from a job worker [during a specified period] shall be included in FORM GST ITC-04 furnished for that period on or before the twenty-fifth day of the month succeeding the said period or within such further period as may be extended by the Commissioner by a notification in this behalf:

Provided that any extension of the time limit notified by the Commissioner of State tax or the Commissioner of Union territory tax shall be deemed to be notified by the Commissioner.

Explanation. – For the purposes of this sub-rule, the expression “specified period” shall mean. –

(a) the period of six consecutive months commencing on the 1st day of April and the 1st day of October in respect of a principal whose aggregate turnover during the immediately preceding financial year exceeds five crore rupees; and

(b) a financial year in any other case.

(4) Where the inputs or capital goods are not returned to the principal within the time stipulated in section 143, it shall be deemed that such inputs or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out and the said supply shall be declared in FORM GSTR-1 and the principal shall be liable to pay the tax along with applicable interest.

Explanation. – For the purposes of this Chapter,-

(1) the expressions “capital goods” shall include “plant and machinery” as defined in the Explanation to section 17;

(2) for determining the value of an exempt supply as referred to in sub-section (3) of section 17-

(a) the value of land and building shall be taken as the same as adopted for the purpose of paying stamp duty; and

(b) the value of security shall be taken as one per cent. of the sale value of such security.

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