Job work process under GST

Introduction to Job Work

Job work is a process where a principal manufacturer or supplier (referred to as "principal" from herein) sends raw materials or semi-finished goods to a third-party manufacturer or service provider (referred to as "job worker") to process, assemble, or complete a particular job or work.

In the context of GST, Job Work refers to any process that is undertaken by a job worker on behalf of a principal, who remains the owner of the goods throughout the job work process.

Under GST, the job worker may be required to register under GST if their annual turnover exceeds the threshold limit, even if they are not engaged in any taxable supply. The principal, on the other hand, is responsible for ensuring that the job worker is registered under GST and that all the necessary compliance measures are followed.

When the raw materials or semi-finished goods are sent by the principal to the job worker for job work, it is considered as a "supply" and is taxable under GST. However, if the job worker returns the processed goods within a stipulated period of time, without any consideration, then it will not be considered as a supply and hence will not attract GST.

Once the job work is completed, the processed goods are sent back to the principal, who may further use them for manufacturing or sell them in the market. If the processed goods are supplied back to the principal, then the job worker can issue a tax invoice to the principal, which will be subject to GST.

Provisions under GST for Job Work

Under GST, there are several provisions that businesses engaged in Job Work need to be aware of. Here are some of the relevant provisions:

• Registration Requirements: Job workers are required to register under GST if their aggregate annual turnover exceeds the threshold limit of Rs. 20 lakhs (or Rs. 10 lakhs for businesses located in the special category states). In addition, if the job worker is registered under GST, then the principal must provide their GST registration number to the job worker.
• Input Tax Credit: If the principal sends raw materials or semi-finished goods to a job worker for job work, then the principal can claim input tax credit for the GST paid on those materials. However, the job worker cannot claim input tax credit for the GST paid on those materials.
• Compliance Measures: The principal must follow certain compliance measures when sending goods for job work. For instance, they must issue a delivery challan containing details such as the description of goods, quantity, value, GST identification number of the supplier, and the job worker. The delivery challan must be issued before the goods are sent for job work, and it must be updated once the job work is completed.
• Timeframe for Job Work: The principal must ensure that the job work is completed within a specified timeframe. If the job work is not completed within the specified time, then the principal must pay GST on the goods as if they were supplied by them.
• Tax Liability: If the processed goods are returned by the job worker to the principal, then the principal must pay GST on the goods at the applicable rate. However, if the processed goods are supplied by the job worker to a third party, then the job worker must issue a tax invoice for the same and pay GST on the value of the goods.

Procedure for Job Work

The procedure for Job Work under GST involves several steps, including documentation, invoicing, and the transfer of goods. Here is a step-by-step guide to the process:

• Send Goods for Job Work: The principal must first send raw materials or semi-finished goods to the job worker for processing, assembly, or completion. They must prepare a delivery challan containing details such as the description of goods, quantity, value, GST identification number of the supplier, and the job worker.
• Update Delivery Challan: Once the job work is completed, the job worker must update the delivery challan to include the details of the processed goods. The updated delivery challan must be sent back to the principal.
• Receive Processed Goods: The principal must receive the processed goods along with the updated delivery challan from the job worker. They must also verify the quantity and quality of the goods received.
• Issue Tax Invoice: If the processed goods are supplied back to the principal, then the job worker can issue a tax invoice to the principal. The tax invoice must contain details such as the name and address of the supplier and recipient, GST identification number, description of goods, quantity, value, and applicable GST rate.
• Pay GST: The principal must pay GST on the value of the processed goods supplied by the job worker at the applicable GST rate. If the job worker supplies the processed goods to a third party, then the job worker must issue a tax invoice and pay GST on the value of the goods.
• Claim Input Tax Credit: The principal can claim input tax credit for the GST paid on the raw materials or semi-finished goods sent for job work. However, the job worker cannot claim input tax credit for the GST paid on those materials.
• Maintain Records: Both the principal and job worker must maintain records of the goods sent for job work, processed goods received, and any tax invoices issued or received. These records must be kept for a period of 6 years from the end of the financial year.

Timeframe for Job Work

Under GST, the timeframe for Job Work is an important consideration for both the principal and job worker. The timeframe refers to the period during which the job work must be completed and the goods must be returned to the principal.

According to GST regulations, the principal must ensure that the job work is completed within a specified timeframe. If the job work is not completed within the specified time, then the principal must pay GST on the goods as if they were supplied by them. The time limit for completion of job work depends on the nature of the goods and the agreement between the principal and the job worker. However, if the time limit is not specified in the agreement, then it is assumed to be one year from the date of the delivery of goods to the job worker.

In addition, GST regulations also specify that the principal can extend the time limit for completion of job work by a further period of one year. However, this extension must be communicated to the job worker in writing before the expiry of the original time limit.

If the job work is not completed within the specified time limit or the extended time limit, then the principal must pay GST on the goods as if they were supplied by them. This means that the principal must calculate the GST payable on the goods based on their value and the applicable GST rate.

The impact of GST on the timeframe for Job Work is significant, as it requires businesses to carefully monitor and manage the time limit for completion of job work. Failure to complete the job work within the specified time limit can result in additional GST liabilities for the principal, which can impact their cash flow and profitability. Therefore, it is important for businesses to have clear agreements with their job workers regarding the timeframe for job work and to ensure that they comply with GST regulations regarding the same.

Tax Implications for Job Work

The tax implications of Job Work under GST are important to understand for both the principal and the job worker. Here are the key tax implications:

GST Liability: Under GST, the principal is liable to pay GST on the value of goods supplied by the job worker, if the job work is not completed within the specified time limit. The GST liability is calculated based on the value of the goods supplied by the job worker and the applicable GST rate.

For example, if the job worker supplies processed goods worth Rs. 10,000 to the principal and the applicable GST rate is 18%, then the principal must pay Rs. 1,800 as GST (18% of Rs. 10,000) to the government.

Input Tax Credit: The principal can claim input tax credit for the GST paid on the raw materials or semi-finished goods sent for job work. This means that if the principal has paid GST on the raw materials or semi-finished goods, they can reduce their GST liability by claiming input tax credit for the same.

For example, if the principal sends raw materials worth Rs. 10,000 for job work and has paid GST of Rs. 1,800 on the same, they can claim input tax credit of Rs. 1,800 and reduce their GST liability.

Exemptions and Deductions: There are certain exemptions and deductions that may apply to Job Work under GST. For example, if the job worker is a registered person and the job work is being carried out for an unregistered person, then the job worker can claim exemption from GST on the supply of processed goods. Similarly, if the processed goods are exported, then the job worker can claim a refund of GST paid on the raw materials or semi-finished goods.

Consequences for Non-Compliance

Non-compliance with Job Work requirements under GST can have several consequences, including penalties and interest charges. Here are some of the consequences of non-compliance:

• Penalty: If a business fails to comply with the requirements for Job Work under GST, they may be liable to pay a penalty. The amount of the penalty depends on the nature and severity of the non-compliance. The penalty may be up to 10% of the tax payable or Rs. 10,000, whichever is higher.
• Interest: If a business fails to pay the GST liability on time, they may be liable to pay interest on the amount due. The interest rate is usually 18% per annum and is calculated from the due date of payment till the actual date of payment.
• Seizure of goods: In some cases, the tax authorities may seize the goods sent for job work if the business fails to comply with the Job Work requirements under GST. This can result in a loss of business and revenue for the business.
• Prosecution: If the non-compliance is found to be intentional or fraudulent, the business may face prosecution. This can result in fines, imprisonment or both.

Impact on Business

Job Work under GST can have both benefits and challenges for businesses. Here are some of the ways in which Job Work under GST impacts businesses:

Benefits

• Increased efficiency: Job Work allows businesses to outsource certain activities such as manufacturing or processing, which can help them focus on their core competencies. This can lead to increased efficiency and productivity.
• Cost savings: Job Work can also help businesses save costs, as they do not have to invest in equipment, machinery, or infrastructure required for the manufacturing or processing of goods.
• Input tax credit: Job Work under GST allows businesses to claim input tax credit for the GST paid on the raw materials or semi-finished goods sent for job work. This can help them reduce their overall GST liability and save costs.
• Faster turnaround time: Job Work can help businesses speed up their production process and reduce their turnaround time. This can lead to better customer satisfaction and increased sales.

Challenges

• Compliance requirements: Job Work under GST comes with a set of compliance requirements, including registration, documentation, and invoicing. Businesses need to ensure that they comply with these requirements to avoid penalties and legal action.
• Time limits: GST regulations stipulate time limits for completing job work. Businesses need to ensure that they meet these time limits to avoid any penalties or interest charges.
• Quality control: Businesses need to ensure that the job worker performs the work to the required standards and quality levels. Poor quality job work can result in losses and damage to the business.
• Logistics and transportation: Job Work requires the transfer of goods from one place to another, which can lead to logistics and transportation challenges. Businesses need to ensure that the goods are transported safely and securely and that there are no delays or damages.

Forms/Returns to be filed for JobWork

To carry out job work under GST, the following forms need to be filed:

• GST ITC-04: This is a form that needs to be filed by the principal manufacturer or goods owner who sends goods for job work. It is a quarterly return that needs to be filed within 25 days after the end of the quarter. This form contains details of inputs, semi-finished and finished goods that have been sent to job workers and received back from them.
• GST INV-1: This is an invoice that the job worker needs to issue to the principal manufacturer or goods owner when they send the processed goods back to them.
• GST ITC-01: This form needs to be filed by the principal manufacturer or goods owner when they receive the goods back from the job worker. It allows them to claim input tax credit on the goods that have been received back from the job worker.

To file these forms, you need to follow these steps:

• Log in to the GST portal with your username and password.
• Go to the 'Returns' section and select the relevant return form.
• Fill in the details required in the form, such as the details of the goods sent for job work, details of the job worker, and details of the goods received back.
• Once you have filled in all the details, review the form and click on 'Submit'.
• After submitting the form, you will receive an acknowledgment number. Save this number for future reference.

If there are any errors in the form or if you need to make any changes, you can do so by filing an amendment form.

Conclusion

Jjob work under GST has been simplified to ensure ease of doing business for taxpayers. The rules are clear and transparent, and taxpayers must follow them to avoid any legal issues or penalties.