Sec.55 of revised GST Act lays down the procedure for removal of goods for job work. It states that a registered taxable person may, under intimation and subject to conditions as may be prescribed, send any inputs and/or capital goods, without payment of tax, to a job worker for job-work. Thus essential conditions to be satisfied to be covered under provisions of Sec.55 are:
1. Inputs/capital goods are to be sent by a registered taxable person.
2. Inputs/capital goods are sent to a job worker. Job worker need not be a registered taxable person.
3. Inputs/capital goods are sent for job-work.
As far as understanding / complying with condition no 1 is concerned it is a simple proposition. However, ones need to understand the meaning of job – work & Job worker respectively.
Sec.2(61) defines the term “ Job work” to mean undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “ job worker “ will be construed accordingly. This definition raises following questions which are required to be answered before we conclude that activity of sending inputs/capital goods amounts to job work:
1. Does the definition mean that all material is required to be supplied by the registered taxable person?
2. Does it include situations where the job worker adds his own material?
In a majority of job work transactions, job worker adds his own material – content of such usage differing in case to case within & across industries. In the case of Prestige Engineering India Ltd. v CCE, Meerut – 1994(9) TMI 66, Supreme Court stated that where job worker contributed his own material to the goods supplied by the customer and was engaged manufacturing, the activity was not one of job work. Minor additions would not take away the fact that the activity was one of job work.
Thus one needs to carefully analyse the factual matrix under which the transactions are undertaken before a conclusion can be drawn.
If based on facts of the case if one comes to the conclusion that the proposed activity cannot be covered under job work, the benefit of Sec.55 will not be available. The transaction would be considered as supply and attract relevant tax.
The further point to ponder is what is the difference between a works contractor & job worker using material is the execution of job work?