Job work

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 May 2012 We registered under manufacture of excise goods i.e. c.i. casting and steel ingots. we some time done by conversion of c.i. casting (coupling). The material use in steel re-rolling mill. The rolling miller send the used material (scrap c.i.casting coupling) the condition of new cast for same material. So we will liable for paid excise duty or service tax under business auxiliary service. please explain the matter and suggest for accounting view.

Regards
Arvind Dewangan

Dayal

Dayal (Expert)
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31 May 2012 You need to clarify whether the job work done by you amounts to manufacture

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 In the scenario you described, where a steel re-rolling mill sends back used material (scrap) for recasting into new cast material, and the company is involved in job work or conversion processes, it’s important to understand the implications regarding excise duty or service tax, and how to handle this from an accounting perspective.

### Excise Duty or Service Tax Implications

1. **Excise Duty Implications:**
- **For Job Work:** Under the excise regime, if you are performing job work (conversion) and receiving the scrap (used material) back to convert it into new material, excise duty implications depend on the specifics of the job work and the nature of the materials.
- **Excise Duty on Job Work:** Generally, excise duty is levied on the value of the finished goods produced from job work. If you are only converting scrap into new material, you will be liable for excise duty on the value addition (conversion cost) if applicable. The duty would be computed based on the value of the new cast material produced.
- **Scrap Reuse:** When you receive back the scrap, it is typically considered part of the raw material, and you should record it as inventory. The scrap itself might not attract excise duty directly, but the conversion process does.

2. **Service Tax Implications (Pre-GST):**
- **Business Auxiliary Service:** Before the introduction of GST, job work services could be subject to service tax under Business Auxiliary Service. Service tax would apply to the service portion of the job work if the process was treated as a service.
- **Post-GST:** Under the GST regime, job work services are taxable, and you need to charge GST on the job work charges. The GST rate for job work depends on the type of goods being processed.

### Accounting Treatment

1. **Material Handling and Job Work Accounting:**
- **Receipt of Scrap Material:**
- Record the scrap received back from the re-rolling mill as inventory or raw material.
- **Accounting Entry:**
```plaintext
Dr. Raw Material / Inventory (Scrap received)
Cr. Accounts Payable / Creditors (if applicable)
```
- **Conversion Process:**
- Record the job work charges based on the value addition or conversion cost. This is generally recorded as an expense if you are providing the job work service.

2. **Excise Duty (Under Old Regime) / GST (Under Current Regime):**
- **Excise Duty (Pre-GST):**
- If applicable, compute excise duty on the value of the finished goods and record it.
- **Accounting Entry:**
```plaintext
Dr. Finished Goods (including excise duty)
Cr. Excise Duty Payable
Cr. Revenue / Sales (for the value of finished goods)
```
- **GST (Post-GST):**
- **Job Work Charges:** Charge GST on job work services provided and record the GST input credit if applicable.
- **Accounting Entry:**
```plaintext
Dr. Job Work Expense / Cost of Production
Dr. GST Input Credit (if applicable)
Cr. Accounts Payable / Creditors
```

### Key Considerations

- **Reconcile the Scrap Value:** Ensure that the scrap value is reconciled correctly in your inventory and accounting records.
- **Compliance with Regulations:** Check the specific excise duty or GST regulations applicable to job work and conversion activities.
- **Documentation:** Maintain proper documentation for the receipt of scrap, conversion process, and job work invoices to substantiate claims and compliance.

### Summary

- **Excise Duty:** Generally applicable on the value addition or finished goods produced from job work.
- **Service Tax (Pre-GST):** Applied to job work services under Business Auxiliary Services.
- **GST (Post-GST):** Job work services are taxable; GST needs to be charged and input credits utilized if applicable.
- **Accounting Entries:** Ensure correct recording of materials, job work charges, and taxes based on the applicable regime.

For specific advice and compliance, consult with a tax advisor or accountant familiar with excise duty and GST regulations in your jurisdiction.

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