Job Work Under GST

DIFFERENT SCENARIOS COVERED UNDER JOB WORK

This article is intended to clarify the current issues faced by the manufacturers and job workers under GST law and covers the following aspects:

1. Meaning of job work under section 2(68) of CGST Act 2017, job worker and Principal for section 143 of CGST Act 2017

2. Registration under GST for job worker

3.  Documents under which goods are provided to job worker

4. Different cases covered in case of job work (Intra state and Inter state)

5. Valuation under job work

6. ITC on goods sent for job work

7. Rate of tax

8. Time limit for returning goods sent for job work and Consequence when goods not returned within time

9. Waste and scrap

10. Return to be furnished and details to be provided in return

11. Maintenance of records

(1) Meaning of job work, job worker and principal

The definition of job work has been defined in the Section 2(68) of CGST Act which means any treatment or process under taken by a person on goods belonging to another registered person.

Treatment or processes include packing, labelling, testing, re-conditioning, re-packing, inspection etc.

Clause 3 of Schedule II to CGST Act 2017, any treatment or process applied to another person goods is to be treated as supply of services.

 Job worker means such person who performs such process or treatment on raw material or semi finished goods.

Principal means a registered person on whose goods (input or capital goods) job work is performed. In simple terms we can say only a registered person can send the goods for job work under the said provisions.

(2) Requirement of obtaining registration by 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.

Provided goods of principal directly supplied from the job worker’s premises will not be included in the aggregate turnover of the job worker.

Where the principal and the job worker are located in different States, the requirement for registration flows from section 24 of the CGST Act for compulsory registration.

However, exemption from registration has been granted to job worker who are engaged in making inter-state supply of services to a registered person year vide notification No. 10/2017 except –

• Who is liable to be registered under section 22(1) or who opts to take voluntary registration under section 35(3) of CGST Act or
• Who is involved in making supply of services in relation to jewellery, goldsmiths and silversmiths wears and other articles.

(3) Legal Documents for goods sent to the Job Worker, goods sent to another Job Worker and goods returned to the Principal and E-way bill

i. Goods shall be sent to the Job Worker through a delivery challan.

ii. 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.

iii. While returning the goods to the Principal by the Job Worker or goods sent to another Job Worker by the Job Worker, the challan issued by the principal may be endorsed by the job worker, indicating there in the quantity and description of goods.

iv. In case the goods after carrying out the job work are sent in piecemeal (small) 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.

v. Challan shall be issued according to the provisions of rule 55 of the CGST Act. Rule 55 (2) requires to prepare the challan in triplicate –

(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 consignor.

Contents of Delivery Challan under GST has been provided under Rule 55 are –

• Date & number of delivery challan,
• Name, Address & GSIN of consigner & consignee,
• HSN code & description of goods,
• Quantity,
• Taxable value,
• Tax rate & Tax amount,
• Place of supply and
• Signature 

 E-Way Bill requirements

Provisions contained in rule 138 of the CGST Rules provide that E-Way Bill is required to be generated before movement of goods by the Principal to the Job Worker or by the registered Job Worker to the Principal or to the another Job Worker 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.

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.

(4) Different cases covered in case of job work (Intrastate and Interstate)

Section 143 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 2 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.

IN CASE OF INTRA STATE SUPPLY

CASE I

Goods sent by Principal to job worker (Intra state)            

When goods are supplied by principal to job worker for job work where both principal and job worker are situated in same state and goods are returned by job worker after processing to principal, in that case principal need not be declare job worker place as additional place of business and will be covered under section 143.

If principal is not registered then it will not be treated as job work.

CASE II

Goods sent by Principal to job worker and further such goods are supplied by such job worker to customer (Intra state)

When goods are supplied by principal to job worker for job work where both principal and job worker are situated in same state and goods are supplied by job worker after processing to customer situated in same state on behalf of principal, in that case principal need not be declare job worker place as additional place of business and will be covered under section 143.

If principal is not registered then it will not be treated as job work.

Analysis:

 If job worker is registered: principal need not to declare job worker premises as additional place of business.

If job worker is not registered: compulsory to declare job worker premises as additional place of business by principal.

CASE III

Goods sent by Principal to job worker 1 and further such goods are sent to job worker 2 from premises of job worker 1 and goods are supplied by such job worker 2 to customer (Intra state)

When goods are supplied by principal to job worker 1 for job work where both principal and job worker 1 are situated in same state and goods are supplied by job worker 1 after processing to job worker 2 for further processing and both job worker 1 and job worker 2 are situated in same state, in that case principal need not be declare job worker place as additional place of business and will be covered under section 143.

If principal is not registered then it will not be treated as job work.

Analysis:

If both job workers are registered: principal need not to declare job workers premises as additional place of business.

If job workers are not registered: compulsory to declare job worker premises as additional place of business by principal.

COMMON CONDITIONS FOR ALL THE THREE CASES:

If job worker is not registered and principal not declare job worker premises as additional place of business in such case transfer of goods not treated as job work and treated as two different supplies.

IN CASE OF INTER STATE SUPPLY

CASE:

When goods are sent from principal situated in one state to job worker situated in other state and from job worker premises to customer on behalf of principal.

If job worker is registered: principal need to declare job worker premises as additional place of business.

If job worker is not registered: Principal needs to obtain registration in state where job worker is situated and declare job worker premises as additional place of business.

(5) Valuation under job work

Valuation will be done as per provisions of section 15 i.e. Transaction value is to be considered as sole consideration. Further provided expenses which are borne by principal on behalf of job worker will be included in transaction value as per section 15(2)(b).

(6) ITC on goods sent for job work

i. When goods are sent to job worker  premises directly from the vendor location (i.e. supplier of principal)  without coming to the principal’s premises, in such case Principal shall be entitled to take credit of taxes paid on inputs or capital goods.

ii. When goods are sent to job worker premises from place of principal, in such case Principal shall be entitled to take credit of taxes paid on inputs or capital goods.

(7) Rate of tax

Through notification 20/2019 – Central Tax (rate) from 1st October 2019, the GST is reduced to 12% from 18% for job work other than those specifically provided by notification.

Rate chart summary

• Rate of GST 1.5% on supply of job work services in relation to diamonds
• Rate of GST 18% on supply of job work services in relation to bus body building
• Rate of GST 12% on supply of job work services other than provided above.

(8) Time limit for returning goods sent for job work and Consequence when goods not returned within time –

• FOR INPUT

According to Section 19(3) read with 143(3) of CGST Act, when inputs are sent for job work without payment of tax and neither received back within 1 year nor supplied from the job worker premises, it shall be deemed to be supplied by the principal to job worker as on the date when the goods were sent out for job work. Time limit can be extended for additional one year for return of goods sent on job work if empowered by commissioner.(Total=2 years)

• FOR CAPITAL GOODS

According to Section 19(6) read with 143(4) of CGST Act, when capital goods are sent for job work without payment of tax and neither received back within a period of 3 years nor supplied from the premises, it shall be deemed to be supplied by the principal to job worker as on the date when the goods were sent out for job work. Time limit can be extended for additional two years for return of goods sent on job work if empowered by commissioner.(Total=5 years)

Provided where inputs/capital goods sent directly to job worker, the period will be counted from date of receipt of inputs/capital goods by the job worker.

Consequence when input and capital goods not returned within time

If the inputs or capital goods are not returned within time limit specified, the principal is liable to pay tax along with interest @18% from the day goods sent to job worker and treat same as outward supply.

Exception to time limit provided for returning input and capital goods:

Section 19(7) of CGST Act, extends the benefit that the time limit of 1/3 years will not be applicable for moulds, dies, jigs and fixture or tools sent out to a job worker.

(9) Waste and scrap

         i. If job worker is registered:-

        Job worker may supply the scrap along with payment under GST.

ii. If job worker is not registered but job worker premises added as additional

Place of business:-

Principal supply Waste or scrap from job worker Place directly or job worker Will return scrap to principal and he will supply from his premises.

(10) Return to be furnished and details to be provided in return

When principal sends inputs or capital goods for job work, he is required to file ITC-04 so that correct information with respect to principal, job worker, value of goods, rate of tax on such goods, type of goods, quantity etc can be provided to department

Due date for filing ITC-04 per quarter is 25^th day of the month subsequent the quarter.

Form ITC-04 is not a return but is a statement which is required to be filed by principal and not job worker.

ITC-04 waived off for the period July 2017 – March 2019.

Format of ITC-04

This statement is divided into four tables

(11) Maintenance of records

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