The concept of Job Work is very much integral to most of industrial activities that constitute outsourcing of some or all the activities to a third party. Thus job work means any person who undertakes any activity or carried on any process on goods belonging to another person (principal). The person undertaking such assignment is called job worker who always works under the instructions of the principal. The job worker undertakes the assignment over the inputs or material belonging to his principal by using his resources, machines, processes and may also use his own materials in the process.
♣ Job Work – Business Model :
Job-work has various synonyms in different industries – for example: Job-work” or “sub-contracting” in manufacturing / engineering industry; “Processing” in chemical or textile industry; “A loan licensing” in pharmaceutical industry; “Contract manufacturing” in FMGC industry; and “Bottling” in IMFL industry and so on. However the essence is outsourcing of certain activities.
Let us understand the process of job work through an example which is commonly practiced in textile industry. In the Ready Made Garment industry, the principal wishing to get the garments made in his brand name, may engage a series of job workers as illustrated below. The Principal may instruct the yarn supplier to deliver yarn directly to the job worker say grey fabric manufacturer. After the fabric is made he may instruct the fabric manufacturer to send the same to another job worker for Dyeing. The dyeing materials used for dyeing may be ordered to some other supplier to deliver directly to the dyeing job worker. After dyeing is completed the same may go to the garment manufacturer on instructions from the principal for stitching garments on job work. Some of the accessories may be supplied to this job worker from other source. The garments so made may be sent back to the principal or to any other customer – domestic customer or overseas customer as per the instructions of the principal. See the sample Job Work Model below.
♣ Job Work – Present Taxation System:
Where job work process results in to manufacture of goods, excise duty becomes applicable and in other cases, service tax comes into play. However, if the principal undertakes the liability to pay Duty (Not. No. 214/86), excise duty is exempted. In the course of execution of the work, in some cases the work involve use of materials also by the job worker. In such cases, it involves transfer of material along with job-work services to principal. Therefore it falls under the definition of works contract and attracts service tax and VAT/CST. In some cases, a job worker provides pure labour and entire inputs/raw materials are provided by the principal in such cases service tax is applicable.
♣ Job Work under GST – Definitions :
As per Sec 2 (68) of CGST Act, 2017, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly. The above definition has been enhanced (compared to present which confines to manufacturing in Excise) which includes any treatment or process which will also cover repairs, calibration, testing, such services etc. etc.
Schedule I [Section 7] includes activities to be treated as supply even if made without consideration. As per Clause 3 of the schedule, Supply of goods by a principal to his agent or by an agent to his principal shall also be treated as supply. Principal and agent are defined in the act as follows :
Sec 2 (88) “principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both;
Sec 2 (5) “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another;
Strictly as per these provisions (Clause 3 of Schedule -1), Supply of goods by a principal to his agent or by an agent to his principal shall also be treated as supply, and accordingly GST is leviable. However superseding above clause through the scheme specially provided in Sec 143 of CGST Act, allows supply of goods by a registered person (principal) to Job Worker without payment of GST. He can further send the goods from one job-worker to another job-worker and so on subject to certain condition.
♣ Understanding Job Work Under GST
Job work provisions can be understood easily through the schematic diagram shown below.
♣ Job Work Under GST – Some of Salient Features:
♣ Job Work : Supply the Goods from the Place of Business of a Job Worker
In general business practice, the goods after job work instead of bringing back to the place of principal, may be required to send to other job worker, or any customer. To provide this flexibility, GST law allowed following three options:
Diagram below depicts the three cases :
♣ GST Rules – Job Work
♣ Transitional Provisions Relating to Job Work :
Sec 141 of CGST Act, provides Transitional provisions relating to job work. As per the provisions, any inputs, semi-finished goods, any excisable goods had been removed for further processing, testing, repair, reconditioning or any other purpose, for carrying out certain manufacturing processes, for carrying out tests or any other process in accordance with the provisions of existing law prior to the appointed day and such goods, are returned to the said place on or after the appointed day, no tax shall be payable if the said goods, after undergoing tests or any other process, are returned to the said place within six months from the appointed day
The period of six months may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding two months
If the said goods are not returned within the period specified in this sub-section, the input tax credit shall be liable to be recovered in accordance with the provisions of clause (a) of sub-section (8) of section 142
Every person to whom the provisions of section 141 apply shall, within sixty days of the appointed day, submit an application electronically in FORM GST TRAN-1, specifying therein, the stock or, as the case may be, capital goods held by him on the appointed day details of stock or, as the case may be, capital goods held by him as a principal at the place/places of business of his agents/branch, separately agent-wise/branch-wise.
♣ Application of Provisions of CGST Act to other GST Laws
CGST Act is like a mother of all GST Laws providing elaborate provisions on almost all aspects. Provisions which are not specifically available in other related laws like IGST Act and SGST / UT GST Act are adopted from CGST Act. Sec 20 of IGST Act and Sec 21 of UT GST Act / SGST Act provides provision for such adoption. Accordingly the provisions of the Central Goods and Services Tax Act, relating to Job Work shall, mutatis mutandis, apply to IGST and SGST / UT GST Act.
Therefore, all the Job work provisions discussed so far are applicable to all intra-state and inter-state transactions as well applicable to union territories also.
♣ Conclusions :
GST law allows any registered person (principal) to send taxable goods – both inputs and capital goods, without payment of tax, to a job worker. The goods also allowed to send directly from any other source to job worker. Input Tax Credit is allowed on such goods sent for job work. There can be further movement of such goods from one job worker to another or to the domestic or overseas customer. However such goods must be brought back to principal’s place of business or must be removed after payment of tax thereon for domestic customer or export with or without payment of tax.
Very liberal provisions are made to receive back the goods sent for job work. For inputs one year period is provided (as against present 180 days) and for capital goods three year period is provided (as against two years at present). In case the goods are not received back within specified period such goods shall be treated as deemed supply on the day when the said goods were sent out and tax is applicable with interest theron. Job work Charges by job worker shall be treated as supply of service and accordingly GST is applicable in case the threshold limit is crossed or his supplies are across the states (inter-state). In such case the job worker need to register and discharge the tax liability.
Transitional provisions are also provided. Accordingly any inputs, semi-finished goods, any excisable goods had been removed for further processing, testing, repair, reconditioning or any other purposes prior to the appointed day and such goods, are returned to the said place on or after the appointed day, no tax shall be payable if the said goods, after undergoing tests or any other process, are returned to the said place within six months from the appointed day subject to declaration of stocks held at other places.
If the said goods are not returned within the period specified in this sub-section, the input tax credit shall be liable to be recovered.
The provisions relating to job work have been adopted in the IGST Act as well as in SGST / UTGST Act from CGST Act and therefore job-worker and principal can be located either in same State or in same Union Territory or in different States or Union Territories and applicable in the similar fashion.