Introduction

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.

Job work means processing or working on raw materials or semi-finished goods supplied by the principal manufacturer to the job worker. This is to complete a part or whole of the process of the finishing of an article or any other essential operation. For example, big shoe manufacturers (principals) send out the half-made shoes (upper part) to smaller manufacturers (job workers) to fit the soles in the shoes. The job workers send back the shoes to the principal manufacturer after completion of the assigned work.

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.

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.

Job work and Job Worker under GST

As per Section 2(68) of the CGST Act, 2017, job work means ‘any treatment or process undertaken by a person on goods belonging to another registered person’. The one who does the said job would be termed as ‘job worker’.

The words used are ‘any treatment or process’, the scope of the term job work is very wide. While the person sending the goods out for job work (i.e. Principal), has to be a registered person, the job worker may or may not be a registered person though operationally it would be advisable to deal with a registered person only as job worker.

This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986. In the said notification, job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus, the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the GST regime.

The ownership of the goods does not transfer to the job worker but it rests with the principal. The job worker is required to carry out the process specified by the principal, on the goods.

Key elements of job work under GST are as below:

1. The ownership of the goods does not transfer to the Job Worker but it rests with the principal;

2. The Job Worker is required to carry out the process specified by the principal on the goods;

3. The principal necessarily be a registered taxable person. If the principal is unregistered one, then the Job Work relation could not be established under GST law;

4. Goods sent for job work should be taxable goods as duty liability will arise only when goods under consideration are taxable.

Supply of Services

As per clause 3 of the Schedule II of the CGST Act, any treatment or process which is applied to another person’s goods is a supply of services. Thus, the charges, i.e., labour charges for the job work done will attract GST as supply of service. However, input tax credit would be available for the same.

Scope/ambit of job work under GST

The definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the 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, the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Supply

Goods sent by a taxable person to a job worker will be treated as supply as supply includes all forms of supply such as sale, transfer, etc. However, the registered taxable person (the principal), under intimation and subject to such conditions as may be prescribed send any inputs and/or capital goods, without payment of tax, to a job worker for job work and from there subsequently to another job worker(s).

It may be noted that, however, if the time frame of one year / three years for bringing back or further supplying the inputs / capital goods is not adhered to, the activity of sending the goods for job work shall be deemed to be a supply by the principal on the day when the said inputs / capital goods were sent out by him. Thus, essentially, sending goods for job work is not a supply as such, but it acquires the character of supply only when the inputs/capital goods sent for job work are neither received back by the principal nor supplied further by the principal from the place of business / premises of the job worker within one/three years of being sent out. It may be noted that the responsibility for sending the goods for job work as well as bringing them back or supplying them has been cast on the principal.

Requirement of registration for the principal/ job worker under GST

For Principal

The provisions of section 143 of the CGST Act are applicable to a registered person. Thus, it is only a registered person who can send the goods for job work under the said provisions. It may also be noted that the registered person (principal) is not obligated to follow the said provisions. It is his choice whether or not to avail or not to avail of the benefit of these special provisions.

For Job Worker

The job worker is required to obtain registration only if his aggregate turnover, to be computed on all India basis, in a financial year exceeds the specified threshold limit (i.e. Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu & Kashmir) in case both the principal and the job worker are located in the same State. Where the principal and the job worker are located in different States, the requirement for registration flows from clause (i) of section 24 of the CGST Act which provides for compulsory registration of suppliers making any inter-State supply of services. However, exemption from registration has been granted in case the aggregate turnover of the inter-State supply of taxable services does not exceed Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu & Kashmir in a financial year vide Notification No. 10/2017 – Integrated Tax dated 13.10.2017.

Therefore, 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.

Job work Procedure under GST:

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. The said section which encapsulates the provisions related to job work, provides that the registered principal may, without payment of tax, send inputs or capital goods to a job worker for job work and, if required, from there subsequently to another job worker and so on. Subsequently, on completion of the job work (by the last job worker), the principal shall either bring back the goods to his place of business or supply (including export) the same directly from the place of business/premises of the job worker within one year in case of inputs or within three years in case of capital goods (except moulds and dies, jigs and fixtures or tools).

Certain facilities with certain conditions are offered in relation to job work, some of which are as under:

1. A registered person (Principal) can send inputs/capital goods under intimation and subject to certain conditions without payment of tax to a job worker and from there to another job worker and after completion of job work bring back such goods without payment of tax. The principal is not required to reverse the ITC availed on inputs or capital goods dispatched to job worker.

2. As per explanation to Section 143 of the CGST Act, for the purpose 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. Thus, the inputs after they have undergone some process at the end of principal or job worker can be sent on job work for further treatment or process.

3. Principal can send inputs or capital goods directly to the job worker without bringing them to his premises, still the principal can avail the credit of tax paid on such inputs or capital goods. However, inputs and/or capital goods sent to a job worker are required to be returned to the principal within 1 year and 3 years, respectively, from the date of sending such goods to the job worker.

4. The principal is accountable for the inputs /or capital goods sent on job work. In particular, he has to ensure that they are brought back, within specified period of one year or three years respectively of the inputs or capital goods being sent out, after completing job work or otherwise, to any of his place of business. Alternately, he can declare the place of business of job worker as his additional place of business (or where the job worker is a registered under Section 25), and supply the inputs/or capital goods, after completing the job work or otherwise, from place of business of the job worker on payment of tax or export them under bond from such place which again has to be done within the aforesaid specified period of one year or three years respectively.

5. Failure to comply will result into liability on the Principal to treat the inputs (or capital goods) to the extent not brought back or supplied from job worker’s business premises, as supplied to the job worker on the day they were sent out to job worker and accordingly pay tax and interest.

6. Before supply of goods to job worker, principal would be required to intimate the Jurisdictional Officer containing the details of description of inputs intended to be sent by the principal and the nature of processing to be carried out by the job worker. The said intimation shall also contain the details of another job worker, if any.

7. The inputs, semi-finished goods or capital goods are required to be sent by the principal to the job worker under the cover of a delivery challan containing specified details including where the goods are sent directly to job worker. The details of challans in respect of goods dispatched to a job worker or received from a job worker during a tax period are required to be included in Form GSTR 1 (outward supplies) for that tax period. Where the inputs or capital goods are not returned to the Principal within the time stipulated under Section 143, the delivery challan shall be deemed to be invoice for the purposes of GST provisions.

8. As per Section 143 of the CGST Act, there is no requirement that scrap generated at job worker end has to be brought back by the Principal. It 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. Since the Principal is responsible for proper accounting it is nevertheless advisable that he ensures that scrap is properly disposed of paying tax thereon.

9. The job worker is often allowed to retain the scrap and its value is adjusted in arriving at labour charges. In that case, considering the provisions of Valuation Rules, scrap value will have to be added to labour charges for payment of GST thereon by the job worker.

Compliance required for sending inputs/capital goods to a job worker under GST

1. Section 143 of the CGST Act provides that the principal may send and/or bring back inputs/capital goods for job work without payment of tax, under intimation to the proper officer and subject to the prescribed conditions.

2. Rule 45 of the CGST Rules provides that the inputs, semi-finished goods or capital goods being sent for job work (including that being sent from one job worker to another job worker for further job work or those being sent directly to a job worker) shall be sent under the cover of a challan issued by the principal, containing the details specified in Rule 55 of the CGST Rules. This rule has been amended vide Notification No. 14/2018-Central tax, dated 23.03.2018 to provide that a job worker may endorse the challan issued by the principal.

3. The principal is also required to file FORM GST ITC-04 every quarter stating the said details.

4. As per the provisions contained in 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).

5. Further, the third proviso to Rule 138(1) of the CGST Rules provides 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.

Accordingly, as mentioned above, 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 challan issued by the principal, including in cases where such goods are sent directly to a job worker. Further, Rule 55 of the CGST Rules provides that the consignor may issue a delivery challan containing the prescribed particulars in case of transportation of goods for job work. It may be noted that Rule 45 provides for the issuance of a challan by the principal whereas Rule 55 provides that the consignor may issue the delivery challan. It is also important to note that as per the provisions contained in 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). The third proviso to Rule 138(1) of the CGST Rules provides 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.

It may also be noted that as per Explanation 1 to Rule 138(3) of the CGST Rules, where the goods are supplied by an unregistered supplier to a registered recipient, the movement shall be said to be caused by such recipient if the recipient is known at the time of commencement of the movement of goods. In other words, the e-way bill shall be generated by the principal, wherever required, in case the job worker is unregistered.

The Central Board of Indirect Taxes and Customs vide Circular No.38/12/2018, dated 26th March, 2018 has clarified with respect to the issuance of challan, furnishing of intimation and other documentary requirements in this regard:

1. 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. The job worker should send one copy of the said challan along with the goods, while returning them to the principal. The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act, 2017.

2. Where goods are sent from one job worker to another job worker:

In such cases, 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. The same process may be repeated for subsequent movement of the goods to other job workers.

3. 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.

4. 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 place of business/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 terms of Rule 46(o) of the CGST Rules. The buyer (i.e., the principal) shall issue the challan under Rule 45 of the CGST Rules and send the same to the job worker directly in terms of para (i) 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.

5. 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.

Submission of intimation:

Rule 45(3) of the CGST Rules provides that the principal is required to furnish the details of challans in respect of goods sent to a job worker or received from a job worker or sent from one job worker to another job worker during a quarter in FORM GST ITC-04 by the 25th day of the month succeeding the quarter or within such period as may be extended by the Commissioner. It is the responsibility of the principal to include the details of all the challans relating to goods sent by him to one or more job worker or from one job worker to another and its return therefrom. The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act.

Liability to issue invoice, determination of place of supply and payment of GST:

1. 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 be determined in terms of section 15 of the CGST Act and 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.

Section 15 of the CGST Act lays down the principles for determining the value of any supply under GST. Importantly, clause (b) of sub-section (2) of section 15 of the CGST Act provides that any amount that the supplier is liable to pay in relation to the supply but which has been incurred by the recipient will form part of the valuation for that particular supply, provided it has not been included in the price for such supply. Accordingly, 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.

It may be noted that 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.

2. Supply of goods by the principal from the place of business/premises of job worker:

Section 143 of the CGST Act provides that the principal may supply, from the place of business /premises of a job worker, inputs after completion of job work or otherwise or capital goods (other than moulds and dies, jigs and fixtures or tools) within one year or three years respectively of their being sent out, on payment of tax within India, or with or without payment of tax for exports, as the case may be. This facility is available to the principal only if he declares the job worker’s place of business / premises as his additional place of business or if the job worker is registered.

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.

3. Supply of waste and scrap generated during the job work:

Sub – section (5) of Section 143 of the CGST Act provides that the 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 (b) above would apply mutatis mutandis in this case.

4. Violation of conditions laid down in section 143:

As per the provisions contained in section 143 of the CGST Act, if the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) are neither received back by the principal nor supplied from the job worker’s place of business within the specified time period, the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) would be deemed to have been supplied by the principal to the job worker on the day when such inputs or capital goods were sent out to the first job worker.

Thus, 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 in accordance with the provisions contained in the CGST Act read with the rules made thereunder.

It may be noted that 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.

Further, there is no requirement of either returning back or supplying the goods from the job worker’s place of business/premises as far as moulds and dies, jigs and fixtures, or tools are concerned.

Availability of input tax credit to the principal and job worker under GST

In view of the provisions contained in clause (b) of sub-section (2) of section 16 of the CGST Act, 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.

Further, 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.

It may be noted that Section 19 of the CGST Act, 2017 provides that the principal shall be entitled to take the credit of input tax paid on inputs sent to the job- worker for the job work. Further, the proviso also provides that the principal can take the credit even when the goods have been directly supplied to the job worker without bringing into the premise of the principal. The principal need not wait till the inputs are first brought to his place of business.

Job Work and Manufacture under GST

Under Goods and service tax act, the terms ‘job work’ and ‘manufacture’ have been separately defined under Section 2(68) and Section 2(72) respectively. Schedule II provides the activity of job work and does not touch the concept of manufacture. It shall further be appreciated that though the definitions are limited to specific activity whereas the definition of ‘job work’ presupposes that only activity will be covered under this definition whether the same amounts to manufacture or not. The material sent for job work therefore may be only for processing or complete manufacture. However as per the provisions of Section 143(1) the tax is not payable for goods sent for job work. The service provided by the job worker requires payment of tax as applicable for the services rendered. Specific confirmation that the activity of the manufacture can also be covered under job work could help to avoid any ambiguity.

Conclusion

Key for effective compliance of Job Work provisions under GST lie in:

1. proper intimation to jurisdictional officer

2. proper covering challan/ E-way Bill compliances

3. timely return/ supply of processed goods from the place of business of the Job Worker.

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2 Comments

  1. venkat says:

    Sir/Madam,
    I am a Gold merchant ( I will purchase and sell Gold) and sent to job work for making, can i take the advantage of manufacture which was done by jobwork

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