Case Study
M/s ABC are job workers who process metal received from their principal M/s. XYZ to carve out metal pieces and return the metal pieces to XYZ. During the course of processing certain trimmed material in form of metal chips is generated which is not returned to the Principal. Only the whole metal pieces are returned back to XYZ. M/s ABC have been advised that they have to add the value of the trimmed metal chips to the job work charges to arrive at the taxable value, since the same are not returned to the Principal. Their Principal M/s XYZ is neither ready to accept the higher value of job work charges (due to the addition of the value of trimmed metal chips) nor is it ready to take back the trimmed metal chips. The views are sought by M/s ABC as to the correct legal position for valuation?
Analysis
Reference is made to Section 143(5) of the CGST Act which provides as under:
“(5) Notwithstanding anything contained in sub-sections (1) and (2), any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered.”
Accordingly, any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax if such job worker is registered, or by the principal, if the job worker is not registered.
It is important to note that waste and scrap generated do not belong to the job worker. As such, supply of waste and scrap from the premises of job worker is permitted but in the name of the principal. Waste and scrap do not belong to the job worker and as such, the job worker cannot make a ‘sale’ and confer valid title to the buyer. It is very common for job workers to sell or retain the waste and scrap. As the Latin maxim nemo dat quod non habet says “no one gives what they do not have“. It is in the context of sale of goods and transfer of property. One who does not have (valid title) cannot give (valid title) to buyer. Hence, when a job worker claims to sell waste and scrap generated and retain the proceeds, such proceeds will be ‘additional consideration’ towards job work services and be liable to same rate of tax as supply of job work.
Since the principal M/s. PQR is not agreeing to accept the higher job work charges after adding up the consideration of waste/scrap, there are other two options available:
1. Principal can raise a tax invoice in the name of job worker for supply made by principal to job worker in which case supply does not involve movement of goods. Section 10(1)(c) of the IGST Act provides for place of supply of goods in cases where supply does not involve movement of goods i.e. location of such goods at the time of the delivery to the recipient. In such cases, the title of the property will be transferred to the job worker by way of a tax invoice and delivery at site and when the job worker supplies this waste/scrap to the scrap dealer, it can utilize the input tax credit of the GST so paid for supply received from the principal for payment of GST liability at the time of outward supply of such waste/scrap.
2. Principal can raise a tax invoice wherein the ‘Bill from’ will be the details of principal and ‘Ship from’ will be the details of job worker and ‘Ship to’ will be details of the scrap dealer. In which case, the consideration will directly flow to the principal for the supplies made by the principal and principal will be liable to the GST liability on such outward supply.
Reference is invited from the Kerala Advance Ruling Authority in the case of Industrial Engineering Corporation [2019] 110 taxmann.com 497 (AAR – KERALA) wherein it was held as under:
“(v) Is there any tax liability on the applicant under GST laws on the value of the scrap held with the job work unit?
(in this case, the applicant is not collecting the scrap of raw materials from the job work place due to the fact that if the applicant has collected the same the applicant would suffer excess amount for transportation and labour charges for the scrap than the cost realizable from the scrap. However, the job work unit would pay GST on any receipt of their disposal of scrap.)
As per sub-section (5) of Section 143 of the CGST/SGST Act, 2017; any waste and scrap generated during the job work may be supplied by the registered job worker directly from his place of business on payment of tax, or by the principal if the job worker is not registered.”
The views expressed in this article are those of the authors and do not necessarily reflect the official opinion.
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