GST impact on Job Work

1. Introduction:

Job-work industry constitutes a significant sector in Indian economy. It’s an indispensable extended arm of India’s industrial sector contributing significantly to GDP. ‘Job work’ basically includes outsourced activities which may or may not result in manufacture.

A large number of industries find it difficult to complete the entire process of production or manufacturing activity on their own. As such, the industry depend on outside support for many things, like, testing, various intermediate processes on raw material etc., for completing/intermediating the manufacturing process.

Many a times, the job worker may be more efficient, both in terms of the quality and cost as compared to the main manufacturer due to the pursuance of core competencies and economies of scale. Most of the big manufacturers, in fact, make very good use of this concept or practice and assign non-core or even standard processes to more than one vendor which enables them to cut down on manufacturing costs.

2. Definitions:

• Activities undertaken by small/medium industries on inputs/semi-finished inputs as per the directions of the principal manufacturer are known as job works
• The person who undertakes the job work is commonly known as job worker, generally in small sector.
• For the purpose of job work, the ‘principal’ means a registered person who sends 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 or returned to principal.

Examples of common job works are slitting, machining, welding, painting, electroplating, assembly, powder coating etc. Job works are also widely resorted to in textile, agri-processing, printing, gems & jewellery sectors etc.

• Under GST, ‘taxable person’ means a person who is registered or liable to be registered.
• An establishment or person who has obtained or is required to obtain registration in a State and any of his other establishments in another State shall be treated as distinct persons for the purposes of GST law.

Therefore, transactions, such as stock transfer, capital goods etc, between two processing units or administration offices of the same job worker, shall be treated as supply. Since such transaction is made between two distinct persons, therefore, such supply would be subject to levy of GST.

3. Composition Scheme:

Benefits of composition scheme are not available to certain categories of persons, such as one,

i. who is engaged in the supply of services, or

ii. who makes any supply of goods which are not leviable to tax under the GST, or

iii. who makes any inter-State outward supplies of goods.

Accordingly, if the process undertaken by the job worker amounts to manufacture/ deemed manufacture of goods (except as may be restricted by the Government), then such job worker is eligible to opt for composition scheme. In case any process does not amount to manufacture/deemed manufacture or services only, then such job worker is not eligible for composition scheme.

4. Registration:

As job work is a service, the job worker would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold.

• 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. Supply:

In the case of job work, 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.

Goods sent by a taxable person (principal) to a job worker will be treated as supply and liable to GST will be treated as a 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) and shall either bring back such inputs/capital goods after completion of job work or otherwise within 1 year/3years of their being sent out or supply such inputs/capital goods after completion of job work or otherwise within 1 year / 3 years 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.

6. Job work Procedures

a. A principal (registered person) may under intimation and subject to prescribed conditions, sends any inputs or capital goods to a job worker for job-work and from there subsequently, send to another job worker and likewise without payment of tax.

b. After completion of job work or otherwise, principal shall-

i. bring back inputs 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.

ii. supply such inputs 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.

c. It is important to note that the there is no time limit for bringing back moulds and dies, jigs and fixtures, or tools.

d. The goods shall not be permitted to be supplied from the place of business of a job worker unless principal declares the place of business of the job-worker as his additional place of business except in a case ,where the job worker is registered.

e. ITC allowed to principal on inputs send to job worker even though they sold it directly from job work premises.

f. The principal shall be responsible for keeping proper accounts for the inputs or capital goods instead of job worker.

g. In case where the inputs or capital goods, other than moulds and dies, jigs and fixtures, or tools 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 within a period of one or three year(s) respectively of their being sent out, 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.

h. 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.

i. It is important to note that for the purposes of job work, the input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker.

7. Invoice:

For the purposes of transportation of goods for job work, the consigner may issue a delivery challan, serially numbered, instead of tax invoice at the time of removal of goods for transportation.
The delivery challan shall be prepared in triplicate, in the case of supply of goods, in the following manner:–

i. the original copy being marked as ‘original for consignee’,

ii. the duplicate copy being marked as ‘duplicate for transporter’; and

iii. the triplicate copy being marked as ‘triplicate for consigner’.

8. Applicability of provision:

a. The provisions relating to job work are applicable only when registered taxable person intends to send taxable goods. In other words, these provisions are not applicable to exempted or non-taxable goods or when the sender is a person other than registered taxable person.

b. It is not compulsory that job work provisions should be followed by the principal. The principal can send the inputs or capital goods after payment of GST without following the special procedure. In such a case, the job-worker would take the input tax credit and supply back the processed goods (after completion of job-work) on payment of GST

9. GST on Job Work:

GST on service charges of job worker GST will be payable on the job work charges including on any material used by the job worker at his own level. Principal will be entitled to take tax credit of same subject to usual conditions.

10. Transition Provision:

Inputs, semi-finished goods or finished goods removed for job work for carrying certain processes and returned on or after the appointed date

In case any inputs or semi-finished goods had been removed before the appointed date from the factory of the manufacturer and sent to a job worker for carrying further processing, testing, repair or for a similar purpose, and the same is received on or after the appointed date, no tax shall be payable if the following conditions are satisfied:

• Underlying goods are returned to the factory within 6 months from the appointed date (extendable for a maximum period of 2 months).
• Declaration of the goods held by job worker is done in specified form and manner
• Supply of semi-finished goods or finished goods is done only on payment of tax in India.

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