Movement of goods to job workers is an essential business situation which occurs frequently. Many times a manufacturer send goods to a job worker for getting further work done on them, and receive the goods back from job worker or sell the goods directly from the place of job worker. The tax position along with this movement of goods needs specific attention because the availability of input credit depends on use of goods for the manufacture of final product, and once goods are removed from the factory, it is significant to ensure that these goods either come back to the factory of manufacturer or otherwise are incorporated in the final goods sold by the manufacturer. In the existing regime, the value addition by the job worker is either taxable as manufacture or as taxable service, and in both cases, an exemption is granted to job worker in case, the principal manufacturer pays duty on the goods received after job work including the value addition. Presently the concept of taxation of the goods sent to a job worker is used in central laws, namely central excise and service tax. It is not used in VAT laws. In GST Act, the same concept has been adopted more or less.
2. Concept of Job Work:
2.1 Section 2(62) of the MGL provides that “job work” means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression “job worker” shall be construed accordingly. This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986 as amended, wherein job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the proposed regime.
3. Concept of supply:
3.1 As the incidence of supply attracts GST, the first question is whether the goods sent by the principal to a job-worker is a supply of goods or not. In this regard, Para 5 of Schedule I of the MGL states that the supply of goods and/or services by a taxable person to another taxable or non-taxable person in the course of furtherance of business shall be treated as supply without consideration. However, the proviso to the said para carves out a distinction in case of supply of goods for job-work by a registered taxable person to a job-worker in terms of section 43A of the MGL. The proviso clearly spells out that the supply of goods by a registered taxable person (principal) to job worker shall not be regarded as supply of goods. Therefore, it can be inferred that no GST shall be applicable on the goods supplied by the registered principal to a job worker. This position is same as is prevalent in the present law.
3.2 Section 43A of the MGL provides that the registered taxable person (principal) can send the taxable goods to a job worker for job work without payment of tax. He can further send the goods from one job worker to another job worker and so on. The principal can bring back such goods, after completion of job work, for supply from his own place of business either on payment of tax within India or the goods can be cleared for exports with or without payment of tax. The principal need not bring back the goods to his place of business and he can supply such goods from the place of business of job worker itself provided the principal has declared the premises of job worker as his additional place of business. The goods can be supplied directly from the place of business of job worker without declaring it as additional place of business in two circumstances namely where the job worker is a registered taxable person or where the principal is engaged in supply of such goods as may be notified in this behalf.
3.3 Explanation 2 to para 1 of Schedule-III also provides that the supply of goods, after completion of job-work, by a registered job-worker shall be treated as the supply of goods by the principal and the value of such goods shall not be included in the aggregate turnover of the registered job worker.
4. Position of Input Credit in respect of the goods sent to job worker:
4.1 In the Central Excise Law, since duty is payable at the time of removal of goods from the factory of the manufacturer, the incidence of sending goods to job worker which involves removal of goods from the manufacturer’s factory has been specifically noted and its tax position has been specifically carved out. However, the input credit position and duty payment position at the time of removal of goods from the factory are inter-twined because of the fact that the reversal of respective credit on account of removal of goods practically amounts to payment of duty on such removal.
4.2 In the MGL, aspects relating to taking input tax credit in respect of inputs/capital goods sent for job-work have been specifically dealt in Section 16A, which provides that the credit of taxes paid on inputs or capital goods can be taken in the following manner:
1. Principal shall be entitled to take credit of inputs sent to a job-worker if the said inputs, after completion of job-work are received back in 180 days from the date of being sent out. In case the inputs are sent directly to the job-worker, the date shall be counted from the date of receipt of inputs by job-worker. Further the credit has to be reversed, with interest, in case the inputs are not received back within the specified time. The credit can be reclaimed when the inputs are actually received back.
2. Principal shall be entitled to take credit of capital goods sent to a job-worker if the said capital goods, after completion of job-work are received back in 2 years from the date of being sent out. In case the capital goods are sent directly to the job-worker, the date shall be counted from the date of receipt of capital goods by job-worker. Further the credit has to be reversed, with interest, in case the capital goods are not received back within the specified time. The credit can be reclaimed when the capital goods are actually received back.
4.3 This position is similar to the existing position as is obtaining in the CENVAT Credit Rules, 2004 (CCR). The related existing provisions provide that when inputs are removed from factory to job worker, respective CENVAT credit is not to be reversed (or duty is not payable) at the time of removal; and in case such goods are received back in the factory within 180 days of removal, there is no need for any credit reversal or duty payment on this account. Similar provision exists for sending the capital goods to job worker if the goods are returned within 2 years of removal. In case, goods do not come back within the specified time frame of 180 days or 2 years, the respective credit on these goods has to be reversed (or duty to be paid equal to the amount of credit taken on them), and whenever the goods come back, the same credit can be taken again by the manufacturer.
5. Movement of goods from Job Worker’s place:
5.1 There could be three possible situations –
1. The goods sent from first job-worker to another job worker – the permission taken from the Commissioner by special order would suffice.
2. After completion of job-work, the Commissioner may allow to bring back such goods without payment of tax to any place of business of the principal (as defined in section 2(75) of MGL), from where the goods will be finally supplied on payment of tax within India or the goods may be exported with or without payment of tax.
- After completion of job-work, the Commissioner may allow the registered taxable person to supply the goods directly to the customers from the place of job worker on payment of tax within India or export the goods with or without payment of tax. This is allowed only when –
a. Either the job worker is registered taxable person under GST; or
b. The principal declares the place of business of job worker as his additional place of business; or
c. The goods supplied are notified goods where above conditions do not apply.
5.2 It may be noted that the provisions relating to ‘job work’ are applicable only to taxable goods. In other words, these provisions are not applicable to exempted or nontaxable goods. The principal, if intends to send exempt / non-taxable goods for job work, can devise his own procedure for the same.
5.3 The responsibility for accountability of the goods sent for job work including payment of tax thereon shall always lie on the principal.
6. Transitional provisions:
6.1 One of the critical aspects while transition into GST would be the goods already sent on job-work prior to the appointed date i.e. date on which Act shall come into effect. In this regard, transitional provisions have been specified for inputs/semi-finished goods/finished goods sent to job-worker prior to appointed date but received on or after the appointed date. Further, the provisions have been specified from the perspective of CGST as well as SGST. Section 150 and 151 of the MGL deals with the job work which may amount to manufacture and Section 152 deals with the finished goods sent for specified services like testing etc. which are chargeable to service tax in the existing regime.
6.2 No transitional provision has been provided for the capital goods removed prior to appointed day and received back thereafter.
6.3 As per the provisions contained in Section 150 to 152 of the MGL, where inputs/semi- finished goods/ finished goods are sent for job work, etc. prior to the appointed day and are received back after that day, there could be following situations ‑
1. When goods are received back within 6 months of the appointed day, no tax shall be payable under GST regime – the manufacturer would have already taken credit on such inputs.
2. When goods are not received back within 6 months of the appointed day, the time may be extended by a maximum period of 2 months by the appropriate authority on showing a reasonable cause, no tax shall be payable under GST regime – the manufacturer would have already taken credit on such inputs.
3. When goods are not received back within 6 months of the appointed day or the extended period, immediately after the expiry of such period, the principal (known as manufacturer under the earlier regime) is liable to pay GST (both CGST and SGST) on the goods so removed earlier.
Note: The manufacturer would have already taken credit on such inputs in the earlier regime which would have got converted to the GST credit for the equal value, the GST payable by the principal would present an equitable tax position.
4. When after six months from appointed day or extended period thereafter, at any point of time, goods are finally received back from the job worker, the job worker will charge GST (both CGST and SGST) as such return of goods would constitute supply for the job worker.
6.4 The above facility would be applicable only when both principal and job worker declare the details of stock of inputs, semi-finished goods or finished goods, as the case may be, on the appointed day.
7. Conclusion:
7.1 In sum, it may be mentioned that the provisions as obtaining in the present central taxation system have been retained in the GST regime.
ANNEXURE
LIST OF RELEVANT PROVISIONS
1. Definitions:
a. Section2 (62): Job work & Job worker
b. Section 2 (75): Place of Business
c) Section 2(96) r/w Section 9: Taxable person
2. Section 16A: Taking ITC of tax paid on inputs or capital goods sent for job work
3. Section 43A: Sending goods for job work
4. Para 5 of Schedule-I: Supply of goods and / or services, without consideration, to a job worker is not to be treated as supply
5. Explanation 2 to para 1 of Schedule-III: Value of goods after job work not to be included in aggregate turnover of registered job worker
6. Transitional Provisions:
a) Section 150: Inputs removed for job work before appointed day but returned after the appointed day
b) Section 151: Semi-finished removed for job work before appointed day but returned after the appointed day
c) Section 152: Finished goods removed for carrying out certain processes before appointed day but returned after the appointed day
