Job work procedure
Sarthak Mittal (TAX ADVOCATE) (90 Points)
14 June 2017
Please tell job work procedure under GST.
Sarthak Mittal (TAX ADVOCATE) (90 Points)
14 June 2017
Sunil Dhiwa
(Tax Consultant)
(170 Points)
Replied 14 June 2017
1) Concept of Job Work:-
Section 2(68) of the Model CGST law defines Job work as follows-
“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.
It is to be noted that if the Job work is not carried on the goods belonging to a registered taxable person i.e. unregistered person, it cannot be termed as “Job Work” and such activity will get covered by normal supply provisions.
2) Job work is a Service:-
Any treatment or process which is being applied to another person’s goods is regarded as a ‘supply of service.”
3) Registration:-
Job worker would be required to obtain registration if his aggregate turnover exceeds the prescribed limit.
Note :- The goods of principal, directly supplied from job worker’s premises will be included in the aggregate turnover of the principal.
However the value of goods or services used by the job worker for carrying out the job work will be included in the value of services supplied by the job worker.
4) Supply of Inputs & capital goods to the job worker:-
The term Supply has a very wide meaning under GST law. It covers all forms of supply where goods and services are supplied in return for a consideration or even without any consideration.
Thus without any saving, GST would be payable on material sent for job work under normal circumstances. To prevent such situation CGST Act includes special provision under Chapter XXI which is discussed below:-
A registered person (hereafter in this section referred to as the “principal”) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job-work and from there subsequently send to another job worker and likewise, and shall-
》 Either bring back inputs/capital goods after completion of job work or otherwise within 1 year/3 years of there being sent out.
Or;
》 Supply such inputs/ capital goods after completion of job work or otherwise within 1 year/3 years of there being sent out, from the place of business of a job worker on payment of tax within India or without payment of tax for export.
Note :- The condition of bringing back capital goods within 3 years is not applicable to moulds, dies, jigs and fixtures or tools.
It is to be noted that, the principal can supply the goods directly from the premises of job worker without bringing it back to his own premises, but the principal should have declared the premises of an unregistered job worker as his additional place of business.
The principal can directly supply goods from job worker’s premises without declaring the premises of job worker as his additional place of business only in two circumstances namely:-
》If the job worker is a registered person ;
Or
》 Where the principal is engaged in supply of those goods as may be notified by the commissioner.
Further the time limit for job work specified for inputs has been increased from 180 days to 1 year and that for capital goods has been increased from 2 years to 3 years.
This increase in the time limit for job work is appreciated by trade and industry.
5) Concept of Capital goods & Input:-
It is important to note that the definition of capital goods and inputs has undergone a significant change. The definition under GST law is as follows:-
“Capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
“Input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
6) Input Tax Credit:-
The principal shall be entitled to take credit of taxes paid on input or capital goods sent to a job worker whether sent after receiving them at his place of business or even when such inputs or capital goods are directly sent to a job worker without there being first bought to his place of business.
However the inputs or capital goods, after completion of job work, are required to be received back or supplied from job worker’s premises, as the case may be, within a period of 1 year or 3 years of there being sent out.
Note :- The condition of bringing back capital goods within 3 years is not applicable to moulds, dies, jigs and fixtures or tools.
7) Maintenance of Accounts & Records:-
The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.
8) Non-Receipt of Inputs and capital goods within stipulated time :-
If the inputs or capital goods sent for job work are not received by the principal or are not supplied from the place of business of the job worker within the prescribed time limit, it would be deemed that such inputs or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out by the principal (or on the date of receipt by the job worker where the input or capital goods where sent directly to the place of business of job worker).
The Principal would be liable to pay tax accordingly.
Thus in GST regime, if the inputs /capital goods are not received back within one year/ three years respectively, it will deemed as supply and GST will be charged on the same.
In case the goods are returned after the said period, it will be treated as Inward supply and be treated accordingly.
Note :- The condition of bringing back capital goods within 3 years is not applicable to moulds, dies, jigs and fixtures or tools.
It may be noted that under the present regime, as per rule 4(5)(a)(iii) of Cenvat Credit Rules, inputs or capital goods, as the case may be, are required to be brought back by the manufacturer or provider of output service within 180 days or 2 years respectively. If not received back within this specified period, the manufacturer or provider of output service shall pay an amount equivalent to the Cenvat credit attributable to the inputs or capital goods, as the case may be, by debiting the Cenvat credit or otherwise.
9) Waste and Scrap:-
A new provision has also been inserted so as to provide that 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.
10) Transitional provisions :-
Where goods have been removed from a factory for further processing to a job worker prior to the GST applicable date, i.e. goods were removed under current tax regime however received back after GST roll-out;
》No tax shall be payable if such inputs or semi finished goods are returned to the said factory within six months from the GST applicable date.
Note:- The time limit of six months can be increased on the basis of a reasonable cause. However such time limit will not be more than two months in excess of six months from GST applicable date. In other words, this can be extended to a maximum time limit of eight months from GST applicable date.
It is to be noted that the manufacturer would have already taken credit on such inputs.
》If such inputs or semi finished goods are not returned within the specified period, the input tax credit shall be liable to be recovered in accordance with theprovisions of clause (a) of sub-section (8) of section 142. (i.e as an arrears of tax.)
[Since the manufacturer would have already taken credit on such inputs earlier]
The above provisions 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.
11) Summary:-
A) Supply of goods by principal to job worker for job work – Not liable to GST, subject to compliance of provisions of sec 143.
B) Supply of job work services by the job worker – Job work charges will attract GST.
C) Return of processed goods back to the principal by the job worker – Not liable to GST, subject to compliance of provisions of sec 143.
Thus we see implications under GST law on the aspects related to job-work transactions is very crucial having regard to the above analysis.
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