Home » GST » Articles » Job work and Transition under CGST Act

Job work and Transition1. Job Working

All industrial sectors are heavily dependent upon Job-working, it is so massive in the term of transaction that it is itself constitute a separate industry and all laws are required to be framed in accordance with the requirement of this sector. The principal usually sends the raw material or semi-finished goods or components which are processed by the job worker resulting in a further processed or finished product. The manufacturer may also send finished product to a job worker for assembling/packing.

Job-work has various synonyms in different industries –

  • “Job-work” or “sub-contracting” in engineering industry,
  • Processing” in chemical or textile industry,
  • “A loan licensing” in pharmaceutical industry,
  • Contract manufacturing” in FMGC industry;Bottling in IMFL industry and so on

The person undertaking the job work is called job worker. The job worker always works under the instructions of the principal manufacturer and exercises his labour over the inputs or material belonging to his principal.

The Basic philosophy under GST or existing laws is Job-worker

2. Statutory definition

As per the definition under Section 2(68) of CGST Act:

(68) “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly;

2.1 Thus it is essential for a Job-work the transfer of ownership of goods is not transfer from the principal to Job-worker and job-worker has no independent authority to delegate its job to another person without the authority of principal.

2.2 Principal must be a registered person under CGST Act. An unregistered person is not entitled to get benefit under CGST Act and transfer of goods from principal to job-worker will constitute as Supply, thus will subject to CGST.

2.3 Principal and Job worker

Person sending goods for job work is termed as Principal and the person who carries Job-work is called a Job-worker. The two terms are not defined under CGST Act, the principal defined under Section 2(88) cannot be import to as for the term principal defined for the purpose of Job-working.

3.Supply and Sending for job-work

The term Supply has given very wide meaning under the GST Law, as per the definition of supply for under CGST Act, Supply covers all forms of supply where goods and services are supplied in return for a consideration or even for without 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 XIII which provides that no GST will be payable where the goods are sending for job work or from the premise of Job-worker to another Job-worker and so on.

4. STATUTORY PROVISIONS

Section 143 of CGST Act, deals with the following issues related to JOB-Work

  1. Which Goods are qualified for Job-working?
  2. What are the procedure for removal and bringing back of inputs of capital goods for Job Work?
  3. Who has the responsibility of payment of GST?
  4. Whether the goods can be sent from one job worker to another without bringing back the goods from the place of a Job Worker?
  5. Is it any duration prescribed within which the Job-working required to complete?
  6. What is the provision to deal with wastage and scrap arising out of job work?
  7. Who will be entitled to take credit Input tax credit of Inputs and Capital Goods undergoes Job working?
  8. What will be transitional provisions related with Job-Works?
  9. Which Goods are qualified for Job-working?

Almost every goods can be send for job-working.

  1. Inputs, Semi-finished or finished goods,
  2. Capital Goods,
  3. Moulds and Dies,
  4. Jigs and Fixtures or Tools

a.Inputs : Section 2(59) “Input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

By this definition Inputs includes Semi-Finished and Finished Goods and can be send for job-wok by principal and all provisions related to the sending Inputs shall be equally applicable on Semi-Finished and Finished Goods.

b. Capital Goods: Section 2(19) “Capital Goods” means goods, the value of which is capitalized in the books of accounts of the person claiming the Input Tax credit and which are used or intended to be used in the course or furtherance of business;

c. Moulds and Dies, Jigs and Fixtures or Tools: these terms are not defined under GST Act, these are commercial terms and interpreted accordingly. In several cases special moulds, dies, jigs, fixture or tools are designed or invented by principal and job-work shall require application of such moulds, dies, jigs and fixture or tools without such Moulds etc job work could not be done, generally these moulds etc are also dispatched by principals to the place of Job-workers are thus these goods are made eligible to be sent at the place of Job-workers.

4.2What are the procedure for removal and bringing back of inputs of capital goods for Job Work?

Sending goods to job-work cannot be an event which shall be at par with sending goods for supply, thus there must be a separate procedure will require to be adopted while sending goods for job-work to ascertain there is no avoidance of GST.

Section 143(1) of CGST Act read with Rule 10 of the Draft Input Tax Credit Rules, state that, Principal may send any inputs and/or capital goods, without payment of tax, for job work subject to the following conditions.

a. Removal under Intimation: the provisions require that such goods can only removed under intimation to job worker’s place.

b. Removal under the Cover of Challan: Rule 10 provides that the inputs or capital goods shall be sent to the job worker under the cover of a Challan issued by the principal, such Challans shall contains the details specified under Rule 8 of Draft Invoice Rules.

c. Challan issued shall be deemed to the an invoice: If the inputs or capital goods are not returned to the principal within the period specified, the Challan issued shall be deemed to the an invoice for the purpose of the Act;

d. Details of Challan shall be included in GSTR-1: The details of Challans in respect of goods dispatched to a job-worker included in Form GSTR-1 furnished for the relevant period.

4.3 Who has the responsibility of payment of GST?

The responsibility for accountability of goods including payment of tax thereon shall lie with the principal.

4.4 Whether the goods can be sent from the place of job worker without bringing back the goods from the place of a Job Worker?

a.The goods can send from the place of a job worker to another job-worker, for export or domestic supply without sending it back to the place of principal.

b. The finished goods can sent directly from place of job-worker, instead of bringing them back to place of business of principal, if such supply is in India, GST is payable. Such goods can also be exported directly from the place of job worker, either on payment of GST or without payment of GST.

Condition for supply of goods from one Job-worker to another job-worker or supply to consumer.

The goods shall not be permitted to be supplied from the place of business of job worker unless the principal declares the place of business of the job worker as his additional place of business except in a case:

(i) where the job worker is registered under section 25; or

(ii) where the principal is engaged in the supply of such goods as may be notified by the commissioner in this behalf.

4.5 Is it any duration prescribed within which the Job-working required to be completed?

It is presumed that the entire job work shall be complete within a year from the goods send under intimation from the place of Principal. In the case of capital goods the time period is ‘Three Year’ from the date of sending under such intimation. However there is no time limit for bringing back moulds and dies, jigs and fixtures or tools.

The goods after processing shall be returned back to the place of principal within one year of their being sent out. Thus the entire process of job work from one job worker or more than one job worker shall be complete in one year. Otherwise as per provision of Section 19 of the Act, the credit availed by principal is required to be reversed. The reversed credit can be taken back when processed goods or taxable goods are returned back.

The provision of section 19 are read as under:

(1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job-worker for job-work.

(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job-work without being first brought to his place of business.

(3) Where the inputs sent for job work are not received back by the principal after completion of job-work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out:

Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker.

(4) The principal shall, subject to such conditions and restrictions as may be prescribed be allowed input tax credit on capital goods sent to a job worker for job work.

(5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16,the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job-work without being first brought to his place of business.

(6) Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out:

Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker.

4.6 What is the provision to deal with wastage and scrap arising out of job work?

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.

4.7 Who will be entitled to take credit Input tax credit of Inputs and Capital Goods undergoes Job working;

The principal shall be entitled to take credit of input tax on inputs and capital goods sent to Job-worker(s) for job-work.

As per Section 19 (3) and (5), the principal shall be entitled to take credit of input tax on inputs even if the inputs or capital goods are directly sent to a job-worker for job work without their being first brought to his place of business.

5.Transitional Provisions relating to of Job Work

Section 141 of CGST Act, deals with the transitional issue. The provisions deals with the inputs/semi-finished/finished and excisable goods and capital goods removed without payment of duties under the existing law and returned after the appointed date. The provisions deals with the following questions arose out of transition.

a) What shall be the time period within which such goods returned to the principal?

b) What shall be declaration required to be made under CGST Law regarding the status of such goods send for job work prior to the appointed date?

c) What shall be implication of GST if such goods are not returned within the stipulate time limit?

Time period within which goods returned to the place of Principal: the inputs/semi-finished/finished goods or the capital goods shall be returned to the place of Job-Worker within the period of Six months from the appointed date. However, the period of Six months may extended not more than two months, by Commissioner on application of the Principal or Job-Worker.

Declaration required to be made under CGST: As per section 141(4), the tax under sub-sections (1), (2) and (3) shall not be payable, only if the manufacturer and the job-worker declare the details of the inputs or goods held in stock by the job-worker on behalf of the manufacturer on the appointed day in such form and manner and within such time as may be prescribed. The Rules and forms related with such declaration is yet to notified.

 

Author is Mr. Sahay Vineet – CS, Senior Manager Taxation

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *

Name
Email
Website