Job work Section 2(68) vs Manufacture Section 2(72) under GST

“Distinguish between ‘job work’ and ‘manufacture’ under GST: Job work involves processing goods for another registered person, while manufacture creates a new product. Understanding the criteria is crucial for compliance.”

In this article I am going to give some quick glimpse over the subject which everyone thinks (persons like me), they know everything about the stated subject, because they believe in the teaching of different schools.

And

When it come to the application (or) making the judgment, usually they will get confused. In such case, neither they make the correct decision or nor the  wrong decision. They will be relied on the third person instead of logic.

So, let us understand definition in detailed:

In GST “job work” defined as under:

2(68) “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

Job work will be having below characteristic:

√ treatment or process has to be undertaken by person

√  on goods

√  of another registered person (Note: Principal should be a registered person)

In GST “manufacture” defined as under:

2(72)“manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly;

Manufacture will be having below characteristic:

√  processing of

√  raw material (or) inputs

√  results will be a new product

√  with distinct name, character and use

Let’s understand the above with one example:

Ex1. “Venkat” engage in the production of Ferro silicon, for the same large quantity of power is required, to meet the power requirement he hires “Suman” for the generation and supply of electricity.

And also “Venkat” will supply coal at free of cost to the “ Suman” for the generation of electricity.

Now the issue arises, is the activity done by  “ Suman”  is job work or manufacture ?

Ans: For the above different school persons will express their views.

School:1

This school taught us that activity done by suman is “manufacture”

Observations:

1. “Suman” by using the coal, water, air as a raw material, producing the electricity.

2. The input and output is entirely different.

3. Venkat” supply coal, which is one of the raw material for the electricity generation

4. And also the essential conditions to call the stated activity as manufacture is satisfied as below:

With the above reasoning, School 1 stamps the above activity as “manufacture”

School:2

This school taught us that above activity done by “suman” is “job work”

Observations:

1. “Suman” is undertaking the process or treatment on goods belongs to other person ( i.e. he is processing the coal which is supplied by “Venkat”).

2. Other Inputs water and air etc. is used by the “Suman” for generation of electricity very nominal.  As coal play’s major role in the generation of the power (cost sheet review).

3. “Suman” just giving the service of conversion of coal into electricity.

4. And also there is no restriction in job work process, after process the inputs character should not change (coal to electricity).

5. Assumed that “Venkat” is registered under GST.

6. All the essential conditions to call the stated activity as Job work is satisfied as below:

My View:

1. I am agreeing with the analysis of the school 2, if we see the unit cost of the electricity, the coal take lion share and all other inputs takes very minimal share.

2. And also “Suman” not have the facility for the store the output.

3. Job work looks like manufacture; we have to see the facts of each case while forming the judgment.

4. So, the above activity is Job work.

Hope, the above content gives you some insights while making the valuable business decisions (or) giving suggestions.

Above content is only the views & opinion of authors about referred subject.