GST on Moulds and Dies under Job Work

There was confusion about the taxability of moulds and dies sent by the principal to his job worker free of cost, based on earlier tax laws.  In order to clarify the doubt and tax department issued a Circular (No.47/21/2018-GST dated 8^th June 2018).  We shall discuss the same here:

• Moulds and dies belong to the Principal
• Moulds and dies belong to the Job worker

Moulds and dies belong to the Principal

When the moulds and dies belong to the principal who either purchased or manufactured it by own and the same is sent to job worker, it is not considered as supply based on the following:

• Moulds and dies sent for free of cost, there is no consideration is involved in the transaction
• The principal and the job worker are not related persons or distinct persons

Reversal of Input tax credit

There is no requirement of reversal of input tax credit taken on such moulds and dies purchased by the principal as the moulds and dies are provided on free of cost in the course or furtherance of the principal’s business.

Value of moulds and dies

As per section 15(2) (b) of CGST Act, any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient and not included in the price actually paid or payable for the goods or services, the same is added to the value of such supply.

Based on the above provision, since the cost of moulds and dies are not incurred by the job worker when they are sent by the principal to job worker free of cost, the value of moulds and dies are not to be included in the value of supply of job work service.

Moulds and dies belong to the Job worker

When the moulds and dies belong to the job worker and the same is supplied by the principal, it is considered as supply based on the following:

• There is a contract between the principal and job worker for the supply of goods made by using the moulds and dies belonging to the job worker and the same is supplied by the principal
• Such moulds and dies are supplied by the principal to job worker free of cost

Reversal of Input tax credit

When the moulds and dies belong to the job worker, the same will not be considered as supplied by the principal to the job worker in the course or furtherance of the principal’s business, the input tax credit to be reversed by the principal.

Value of moulds and dies

Since there is a contract between the principal and the job worker, for the job worker should use his own moulds and dies for the supply of goods and the same is supplied by the principal, the amortisation cost is to be added in the value of supply of job work service.

Conclusion

Based on the above clarification, it is concluded that when the moulds and dies are provided by the principal (either by own manufacturing or purchase from others) to the job worker free or cost, it is not a supply and there is no to reverse the input tax credit.

When the moulds and dies which are purchased by the principal from the same job worker who is doing the job work, and provide such moulds and dies to the same job worker for the supply of job work service, it is considered as supply, input tax credit to be reversed by the principal for the purchase from the job worker and amortisation cost to be included in the value of supply of such service provided by the job worker.