1. Section 19 of CGST Act prescribes the provisions relating to taking input tax credit in respect of inputs sent for job work. The procedure for removal of goods for job work without payment of tax is prescribed under section 143 of the CGST Act. Rule 45 of CGST Rules specifies conditions and restrictions in respect of inputs and capital goods sent to the job worker.
2. Meaning of Job Work:- Job work” means undertaking any treatment or process by a person on goods belonging to another registered person, and the expression “job worker” shall be construed accordingly – section 2(68) of the CGST Act.
2.1 The definition of job work makes it clear that the term job work can be used only when goods are sent by another registered person. The person sending goods for job work is termed as ‘Principal.’ He should be a registered person
3. Meaning of Principal:- Principal’ for job work provisions means a registered person who sends any inputs and/or capital goods, without payment of tax, to a job worker for job-work and from there subsequently sends to another job worker and likewise – section 143(1) of CGST Act and Explanation to section 19(7) of CGST Act.
4. Registration requirements for Job worker: The definition of job work uses the term ‘process by a person.’ Thus the job worker needs not to be registered under GST.
4.1 Job worker need not be registered under GST if his aggregate turnover is less than 20 lakhs per annum (10 lakhs per annum in case of special category States), whether he supplies such service within the State or inter-state – Para 6 of CBI&C circular No. 38/12/2018 dated 26-3-2018.
4.2 Value of goods supplied by principal is not includible in the value of Job worker’s aggregate turnover. His aggregate turnover consists of job work charges and value of own material used
5. GST Rates for Job Work: GST Rates on job work are specified in Sr No 26 of Notification No. 11/2017 dated 28.06.2017 as amended from time to time. The GST rates can be broadly classified as follows
| Sl. | Notification Sl. No. | Description | Rate |
| (a) | 26(i)&(ii) | Printing of newspapers, the printing of paper products, Textiles and textile products, hides & skins,Gold, silver, precious stones, platinum, Manufacturing of leather goods or footwear | 5% |
| (b) | 26(ia) & (iia) | Manufacture of Umbrellas Printing of paper products (where GST rate is 12%) | 12% |
| (c ) | 26(ib) | Job work on diamonds (inserted, w.e.f. 01.10.2019 – The rate was 5% during 01.07.2017 to 30.09.2019) | 1.5% |
| (d) | 26(ic) | Job work in relation to bus bodybuilding | 18% |
| (e) | 26(id) | Job work other than above
Note – (i) Input shall be sent by the registered person (ii) Activity may or may not results in the manufacture |
12% |
| (f) | 26(iii) | Manufacturing services of tailoring
The sender of the material may or may not be registered under GST |
5% |
| (g) | 26(iv) | Manufacturing services of goods owned by others
where input send by an unregistered person Activity may or may not result in the manufacture |
18% |
| (h) | 27(i) | Services by way of printing of newspapers, books, etc.
Note – (i) Only content is supplied by the publisher (ii) Physical inputs belong to the printer |
12% |
| (i) | 27(ii) | Other Manufacturing services, publishing, printing, etc | 18% |
5.1 Item at Sr No. 26 (id ) of Notification No. 11/2017 has been inserted, w.e.f. 01.10.2019, which prescribes a 12% GST rate for all services by way of job work, which makes the entry at item 26 (iv), which covers “manufacturing services on physical inputs owned by others” with GST rate of 18%, redundant.
5.2 CBEC vide circular 126/45/2019 dated 22 Nov 2019, clarified that there is a clear demarcation between the scope of the entries at item 26 (id) and item 26 (iv) of the Notification No. 11/2017. Entry at item (id) covers only job work services as defined in section 2(68) of the Act, that is, services by way of treatment or processing undertaken by a person on goods belonging to another registered person, On the other hand, the entry at item (iv) specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under the CGST Act.
5.3 Thus, service provided by way of treatment or processing undertaken by a person on goods belonging to another registered person will be considered under the Job work service and liable @ 12%. It means any service provided to Non registered person by way of treatment or processing will be covered under manufacturing service and liable @ 18%.It can be summarized as follows:-
| Service provider | Service Recipient (the owner who sent goods for processing) | GST Rates | Remarks |
| Registered Job Worker | Registered Person | 12% | The process may or may not result in the manufacture [Sr No. 26(id)] |
| Registered Person | Unregistered Person | 18% | The process may or may not result in the manufacture [Sr No. 26(iv)] |
| Unregistered Person | Any person (registered or unregistered) | No GST | The supplier of services is unregistered. |
6. What is manufacture:- Manufacture means the processing of raw material or inputs in any manner that results in the emergence of a new product having a distinct name, character, and use, and the term manufacturer shall be construed accordingly. The definition of job work nowhere states that Job Work should not result in the manufacturing of a product.
7. Sending Inputs (goods) for Job work: The inputs/capital goods can be sent to the job worker from the place of business of principal.
7.1 Intermediate product can be sent for job work – For job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker – Explanation to section 143 of CGST Act.
7.2 Sending Goods directly to Job worker’s place: Goods can be sent directly to the job worker’s place from the place of supplier of those goods, without bringing them at the place of business of principal
7.2.1. Procedure to send goods directly from the supplier’s place: In case, supplier sending goods directly to the job worker’s place, the invoice of supplier should be in the name of the buyer (Principal), and the name and address of the job worker should be mentioned as the consignee.
7.2.2. The principal shall issue Delivery Challan under rule 45 of CGST Rules and send it directly to the job worker.
7.2.3. Even imported goods can be sent from the customs station of imports to the place of the job worker. Here also, principal should prepare Delivery Challan and send it to job worker – Para 8.4(iv) of CBI&C circular No. 38/12/2018 dated 26-3-2018.
7.3 Sending goods by one job worker to another or returned to Principal – Goods can be sent by one job worker to another. If 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.
7.4 Supply of finished goods from Job worker’s place:- After job work, the finished goods (inputs after job work or capital goods) can be sent directly from the place of job worker, instead of bringing them back to place of business of ‘principal.’ If such supply is in India, GST is payable.
7.4.1. Such goods can also be exported directly from the place of job worker, either on payment of GST or without payment of GST – section 143(1)(b) of the CGST Act. – reiterated in CBI&C Circular No. 88/07/2019-GST dated 1-2-2019.
7.4.2 The goods shall not be permitted to be supplied from the place of business of a job worker in terms of clause (b) unless the “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 of CGST Act; or (ii) where the “principal” is engaged in the supply of such goods as may be notified by the Commissioner in this behalf – proviso to section 143(1) of CGST Act.
7.4.3 If a job worker is registered under GST, then the ‘principal’ is not required to declare the place of job worker as an additional place of business.
7.5 Supply is of principal and not of job worker – The supply is of principal made from a place of job worker, It is not supply made by job worker – Para 7 of CBI&C circular No. 38/12/2018 dated 26-3-2018. Hence, invoice and the e-way bill should be issued by principal and not by the job worker
7.6 Clearance of waste and scrap arising during job work: 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 – section 143(5) of CGST Act.
7.6.1 Place of Supply:-The Invoice may be issued by the principal if the job worker is not registered. If the principal is located in State A and the job worker is located in State B, the principal while selling scrap should charge IGST if the recipient is located in State B or any other State. If the recipient of scrap is located in State A, the principal will charge SGST and CGST – Para 9.4(iii) of CBI&C circular No. 38/12/2018 dated 26-3-2018
8. Responsibility of tax and goods is of Principal: The responsibility for accountability of the goods, including payment of tax thereon shall lie with the “principal” – section 143(2) of the CGST Act.
9. Input Tax Credit of inputs and capital goods sent for job work :
| Section 19(1) | The “principal” shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax on inputs sent to a job-worker for job-work |
| Section 19(2) | 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 their being first brought to his place of business |
| Rule 45(1) | Delivery challan for sending goods for job work: For transportation of inputs or capital goods for job work, a delivery challan shall be issued by principal.
Delivery Challan shall also be issued when the material is sent directly to the place of job worker from the place of supplier |
| Endorsement of the Challan: The job worker, instead of issuing his own Challan, can endorse the Challan issued by the principal to another job worker, indicating there in the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
The Challan endorsed by the job worker may be further endorsed by another job worker, indicating there in the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal –first and second proviso to rule 45(1) of CGST Rules inserted w.e.f. 23-3-2018 |
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| Rule 45(2) | Contents of Delivery Challan: The Challan issued by the principal to the job worker shall contain the details specified in Rule 55 |
| Rule 55 of CGST Rules:- Contents of Delivery Challan – The delivery challan, serially numbered should be issued at the time of removal of goods for transportation, containing following details (i) date and number of the delivery challan (ii) name, address and GSTIN of the consigner, if registered (iii) name, address and GSTIN or UIN of the consignee, if registered (iv) HSN code and description of goods (v) quantity (provisional, where the exact quantity being supplied is not known) (vi) taxable value (vii) tax rate and tax amount – central tax, State tax, integrated tax, Union territory tax or cess, where the transportation is for supply to the consignee (viii) place of supply, in case of inter-State movement, and (ix) signature – rule 55(1) of CGST Rules.
Delivery challan to be in triplicate – The delivery challan shall be prepared in triplicate, in case of the supply of goods, with the following marking – (a) the original copy being marked as ORIGINAL FOR CONSIGNEE (b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER, and (c) the triplicate copy being marked as TRIPLICATE FOR CONSIGNER – rule 55(2) of CGST Rules. Electronic way bill for sending material for job work and its return – Where goods are being transported on a delivery challan in place of the invoice, the same shall be declared in e-way bill issued under rule 138 – rule 55(3) of CGST Rules. Such an e-way bill is required in case of inter-state supply for job work, even if the value of consignment is less than Rs 50,000 – the first proviso to rule 138(1) of CGST Rules. E-way bill can be generated either by principal or job worker – third proviso to rule 138(1) of CGST Rules. If a job worker is unregistered, the e-way bill should be generated by principal. It has been reiterated in Para 8.3 of CBI&C Circular No. 38/12/2018, dated 26-3-2018. In case of material sent for job work or returned after job work, the ‘value’ indicated in the e-way bill should be inclusive of the value of goods. |
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| Rule 45(3) | The details of challans in respect of goods dispatched to a job worker or received from a job worker during a quarter 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 quarter or within such further period as may be extended by the Commissioner by notification in this behalf.
Intimation of every job worker or every dispatch to job worker is not required – Para 8.4(vi) of CBI&C circular No. 38/12/2018 dated 26-3-2018. |
| Section 19(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 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. |
| Section 19(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 |
| Section 19(5) | 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. |
| Section 19(6) | Where the Capital goods sent for job work are not received back by the principal within 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. |
| Rule 45(4) | Payment of tax with interest if inputs or capital goods are not returned within the prescribed period – If inputs or capital goods are not returned within the period prescribed in section 143 (one or three years), the supply shall be declared in form GSTR-1. Tax with applicable interest shall be paid |
| Tax with interest is payable if goods are not returned within one/three years. As per section 143 of CGST Act, if goods are not returned within one year in case of inputs and three years in case of capital goods, the inputs and capital goods shall be deemed to have been supplied by principal to the job worker on the day when such inputs or capital goods are sent out to the job worker.
Thus, if inputs or capital goods are not returned within one/three years, tax is payable by principal with interest from the date on which goods were sent for job work. He should raise a tax invoice for that purpose and include it in his return for that period. If the goods are returned by job workers after one/three years, the job worker will be treated as supplier and will be liable to pay GST – Para 9.5 of CBI&C circular No. 38/12/2018 dated 26-3-2018. The period of one year or three years can be extended by Commissioner for a further period of one year or two years respectively on sufficient cause being shown – proviso to section 143(1) of CGST Act inserted vide CGST (Amendment) Act, 2018 [This amendment notified and made effective on 1-2-2019]. |
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| Section 19(7) | Special provisions relating to moulds and dies, jigs and fixtures, or tools: The provision of returning goods within one/three years is not applicable to moulds and dies, jigs and fixtures, or tools. These may be retained at the place of job worker
Moulds, tools, and dies are not required to be returned to Principal – Para 9.5 of CBI&C circular No. 38/12/2018 dated 26-3-2018. Thus, the job worker can sell them as scrap on payment of GST if he is registered. If he is not registered, GST can be paid by ‘principal’ on such scrap. |
10. General Provisions and Advance Rulings related to Job Work under GST:-
Mixing of materials supplied by principal, processing it, and returning the final product after manufacture is ‘job work’ –Kerala Estera Polymers, was procuring some consumables. He was mixing rubber compounds on the materials supplied by the principal. He was returning the finished products such as rubber-backed mats and matting to the principal. It was held by AAR KERALA that this is ‘job work,’ and the GST rate is 5% [2.5% CGST plus 2.5% SGST/UTGST].
Processing of natural gas and other inputs supplied by customers into manufactured industrial gas – Processing of natural gas and other inputs supplied by customers into manufactured industrial gas is job work under 9988 taxable @ 18% – (AAR – Kerala). In re Prodair Air Products India (P) Ltd. (2018) (AAR – Kerala).
The generation of electricity from coal supplied by the principal is the manufacture of electricity and not job work – The generation of electricity from coal supplied by the principal is the manufacture of electricity and not job work – JSW Energy Ltd. In re (2018) 68 (AAR – Maharashtra)
Repairing and servicing of transformers owned by another person is not job work. It is a composite supply unless the contract specifies that the goods and services are to be separately charged. The principal supply is the service of repair of transformers classifiable under SAC 998719 and taxable @ 18% – Alok Bhanuka., In re [2019] (AAR-West Bengal)
Job work permissible even if the identity of inputs gets lost – In Haldia Petrochemicals v. CCE (2005) 1 STT 261 (CESTAT), the assessee was sending Naptha to a job worker for the generation of electricity and steam. Electricity would be supplied by the job worker to the assessee. It was held that assessee would be eligible for Cenvat credit of Naptha even if the identity of input is lost at the end of the job worker.
Consumables can be sent for job work, and these need not be returned – In Ratan Projects & Engineering Co. (P.) Ltd., In re [2019] (AAR-West Bengal), applicant, a manufacturer of cable tray, angel ladder tray, etc., was sending steel structures for galvanizing to a job worker along with furnace oil, zinc, nickel that are to be consumed in the galvanizing process. It was held that goods like furnace oil, zinc, etc., consumed in the process of galvanizing are inseparable from galvanized goods. They should not be treated as supply in terms of section 143(3) of the CGST Act, provided they have been entirely used up in the process of galvanizing, even if they are not returned within the time allowed under section 143(1)(a) of CGST Act. The return of galvanized goods to the applicant satisfies the condition of receiving back inputs in accordance with section 143(1)(a) of the GST Act.
A job worker can use his material in job work: Normally, a ‘job worker’ can use only minor items. He can use other inputs in addition to raw material received by him and recover charges from the principal. However, the use of such material shall not result in the manufacturing of different goods. The decisions have been taken in Excise and Customs, and the same principles can apply to GST also.
A tailor stitching a shirt out of cloth supplied by his customer may use his buttons, thread, and lining cloth, and such an activity is no bar in job work.
Disclaimer: Every effort has been made to keep the information cited in this article error-free. Suggestions and feedback to improve the task are welcome.
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Part 13 of the series will cover the topic “Input Service Distributor under sec 20 of CGST Act 2017
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