We know scrap generated during job work can be sold either by principal or by Job worker(registered).
Scenario 1:
if job worker sells the scrap, keeps the entire consideration(as agreed) after paying GST then
1. Will principal have to pay GST on outward supply of scrap to job worker?
2. Job worker agrees to provide credit note to principal.
Is GST to be paid by principal on scrap component?
3. Job work charges are reduced to the extent of scrap value when consideration is with job worker.
Again, is GST to be paid by principal?
All in all how should valuation of job work charge be done wrt scrap. how to account for credit note.
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Scenario 2:
If principal sells scrap from Job worker site, collects the basic+gst then should he follow cost accounting principles and adjust cost of production.
Eg.
100/- Raw Material sent to JW
20/- worth RM went in Scrap.
80/- Effective RM in use
Job work charges 40/-
Scrap value salvaged 10(basic)+2(GST)/-
cost of goods returned
80+40-10 = 110
So is it ok to factor scrap value to units produced.
or should I show it under income from scrap in P&L.
Also, if entire consideration is with job worker then should I follow cost accounting to factor scrap value in cost of unit produced.
Ideally, scrap generated should be sold by job worker. You should work out a lesser rate for job work by taking into account the benefits arising to the job worker from sale of scrap.
You would be able to get fixed job work per unit costs as the wastage would be managed by job worker based on your agreed estimated scrap percentage
The cost and financial accounting would also get simple.
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