In this article, we will discuss all the provisions in GST Law regarding Job-Work including Eligibility of ITC, Chargeability of GST, Various Time Lines, Procedure, Returns, Registration Requirement of Job-worker and Determination of Value for Taxability in the Hand of Job-Worker.
Job Work is defined in Section 2(68) of the CGST Act as
"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;
It is like where a Shirt manufacturer (“A”) who is a Registered Person send the raw fabric to “B” for stitching and after stitching “B” either returns the shirts to A or send to another Person let say “C” for packing of shirts. So in this case both B & C are doing job work for A and will be considered as Job Workers. A will be termed as “Principal”.
To facilitate the outsourcing of work in the industry and development of ancillary industries, specific provisions regarding Job work needs to be incorporated in the GST Law.
Accordingly, following provisions regarding Job Works which have been prescribed are explained in the Article:
F. Registration Requirement for Job-Worker (Circular 38/12/2018)
A. Availability of ITC in respect of inputs and capital goods sent for job work (Section 19)
As per Section 16, ITC is available to the Principal when goods (inputs & Capital Goods) are used in furtherance of business of him. Since, in the case of Job Worker, inputs are initially used by the Job Workers though ultimately for the benefit of the Principal, there may be scope of dispute in absence of specific Provisions in this regard. Accordingly, Section 19 of CGST Act provides that ITC will be available to the Principal for inputs and capital goods sent to the Job Worker.
Further, as per Section 16(2)(b), one of condition to avail ITC is that Inputs and Capital Goods Should be received by the Registered Persons/Principal. Accordingly, in cases where Raw Materials or Capital Goods are being directly sent to the Job Worker to save the transportation costs, ITC would not have been available to the Principal in normal course. Therefore, Section 19 specifically provides that ITC will be available to the Principal in these cases also.
B. Whether GST is Chargeable on transfer of Goods to Job Worker (Section 143)
There is transfer of Goods from Principal to Job Worker, though consideration is not flowing from Job Worker to Principal against these Goods and ownership is also not transferred, it may not fall into definition of supply as per Section 7. However, to bring absolute clarity, Section 143 provides that A registered person (hereafter in this section referred to as the "principal") may under intimation 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.
It may also be noted that the registered person (principal) is not obligated to follow the said provisions. It is his choice whether or not to avail or not to avail of the benefit of these special provisions. (Circular No.38/12/2018)
C. Time Lines Prescribed for Return of Goods by Job Worker & Impact in case of contravention of the same (Section 19 & 143)
1. Time Lines:
Time Lines have been in Section 19 & 143 of CGST Act regarding return of Goods by the Job Worker to Principal. The same have been summarised in Table below:
Either Bring Back inputs after Completion of Job work or otherwise without payment of Tax, or
Supply such Inputs after Completion of Job work or otherwise from business place of Job Worker with payment of Tax in India or Export such inputs (with/without payment of Tax).
One Year from date of sending of such inputs by Principal. (In case, Inputs are directly received from Supplier of Principal, from date of receipt by Job Worker).
Either Bring Back Capital Goods after Completion of Job work or otherwise without payment of Tax, or
Supply such Capital Goods after Completion of Job work or otherwise from business place of Job Worker with payment of Tax in India or Export such Capital Goods (with/without payment of Tax).
Three Years from date of sending of such Capital Goods by Principal. (In case, Capital Goods are directly received from Supplier of Principal, from date of receipt by Job Worker).
Moulds, dies, jigs and fixtures, or tools
No Requirement to bring them back.
No Time Line
Here otherwise can be interpreted that, even without completion of Job Work, inputs can be returned back to the Principal.
Note: Option of supply from Job Worker can be opted only when Principal has declared 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.
The period of one year and three years may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding one year and two years respectively.
2. Impact of contravention of Time Lines in case of Job-Work (Section 19/143)
In case, above time lines are not followed, in that case it will be deemed that such inputs/capital goods had been supplied by the principal to the job worker on the day when the said inputs were sent out.
Since, consideration is not involved; it could not have been covered in the definition of Supply, therefore, deeming provision needs to be invoked by the Law. Accordingly, Principal needs to discharge GST on such inputs/capital goods along with interest after lapse of the timelines prescribed by declaring in GSTR-1.
Value of such deemed supply will be the value declared in the challan by the principal while sending the goods to job worker i.e., without including cost of transportation and job work charges.
Where goods are sent to job worker and same are lost/ destroyed due to some unavoidable circumstances, goods will not be returned by the job worker. If goods are lost, whether the principal is required to reverse credit under section 17(5)(h) or it will be deemed supply as per section 19(3) is the moot question. Since goods are lost or destroyed, section 17(5) (h) will be applicable and the principal is required to reverse the credit on inputs or capital goods, and it will not be treated as deemed supply.
D. Procedure for sending and returning of Goods from and to the Job Worker. (Section 143,19 read with Rule 45)
The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.
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.
For the purposes of job work, input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker.
Requirement of Challan under Job-Work
The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan (make three copies, two to be provided to Job Worker) (contents of challan are prescribed in Rule 55) issued by the principal, including where such goods are sent directly to a job-worker, and where the goods are sent from one job worker to another job worker, the challan may be issued either by the principal or the job worker sending the goods to another job worker:
Provided that the challan issued by the principal may be endorsed by the job worker, indicating there in the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal (on one of two copies provided to Job-worker).
Provided further that the challan endorsed by the job worker may be further endorsed by another job worker, indicating there in the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
Place of Supply in case Goods are directly Supplied from Job-Worker: It will be determined from the Registered Place of Principal. For instance Principal (A is situated in U.P.), Job Worker ("B" situated in Delhi). In case Goods are directly supplied to Customer "C" from Job Worker. In that Case, if C is based out of Delhi (same as of Job-worker), then also it will be considered as inter-state supply (From UP to Delhi). if C is situated in UP, then it will be considered as intra-state supply.
E. Returns pertaining to Job Work & E-way Bill Requirement in case of Job-Work.
1. E-WAY Requirement in case of Job-Work (Rule 138)
As per Rule 138,
Every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees—
(i) in relation to a supply; or
(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person,
Since, movement of goods in respect of Job-work is covered in Rule 138(1)(ii), if value of goods is more than Rs. 50,000, E-Way Bill needs to be generated.
Further, as per third proviso to Rule 138(1), in case Principal and Job worker are based out of different state/UT, Compulsory E-way bill needs to be generated even if value of goods is less than Rs. 50,000.
Accordingly, Principal will create E-way bill at the time of transfer of goods to Job-Worker. In case of Return of Goods or transfer of Goods from One Job Worker to Another, Job Worker will create E-way Bill if registered; else Principal will create E-way Bill.
2.Return (Rule 45) under Job Work
Principal is required to file details of challans in respect of goods dispatched to a job worker or received from a job worker in the Return ITC-04 within 25 days of month of specified
Summary of Returns Frequencies
2017-18 to 2018-19
Notification No. 38/2019
Apr-2019 to Sept-2021
Quarterly (25th of month of succeeding quarter)
If Aggregate Turnover of Principal Exceeds Rs. 5 crores in preceding Financial Year (Six monthly), Else Annual Return to be Filed.
Changes in Rule 45 vide N.No. 35/2021.
F. Registration Requirement for Job-Worker (Circular 38/12/2018)
Doubts have been raised about the requirement of obtaining registration by job workers when they are located in the same State where the principal is located or when they are located in a State different from that of the principal. It may be noted that the job worker is required to obtain registration only if his aggregate turnover, to be computed on all India basis, in a financial year exceeds the specified threshold limit (i.e. Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu & Kashmir) in case both the principal and the job worker are located in the same State. Where the principal and the job worker are located in different States, the requirement for registration flows from clause (i) of section 24 of the CGST Act which provides for compulsory registration of suppliers making any inter-State supply of services. However, exemption from registration has been granted in case the aggregate turnover of the inter- State supply of taxable services does not exceed Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu & Kashmir in a financial year vide notification No. 10/2017 – Integrated Tax dated 13.10.2017. Therefore, it is clarified that a job worker is required to obtain registration only in cases where his aggregate turnover, to be computed on all India basis, in a financial year exceeds the threshold limit regardless of whether the principal and the job worker are located in the same State or in different States.
G. Nature of Supply & Determination of Value in the Hand of Job Worker.
1. Nature of Supply: First of all, we need to understand about Nature of Supply by the Job-worker. In this regard, as per clause 3 of Schedule-II, “Any Treatment or process which is applied to another Person’s goods is a supply of Supply”.
Accordingly, it can safely be said that Nature of Supply from Job Worker to Principal is of Supply of Service.
2. Value of Supply: There can be one doubt regarding that whether value of Goods is also required to be added in the value of supply of Job-worker to Principal. In this regard, clarity is being provided in Explanation to Section 22 that
(ii) the supply of goods, after completion of job work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker;
Accordingly, value of service in respect of Job-worker will be the Job-work charges/service charges he is taking from Principal for his work.
Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work (Circular No.38/12/2018). Accordingly, any value of own goods used in the process is recovered separately from the Principal, the same will also form part of Value of Service of Job-Worker.
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. Further, Fab Gyan and its Team will not be responsible for any mistake.