Job-work sector constitutes a significant industry in Indian economy. It includes outsourced activities that may or may not culminate into manufacture. The term Job-work itself explains the meaning. It is processing of goods supplied by the principal. The concept of job-work already exists in Central Excise, wherein a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. Many facilities, procedural concessions have been given to the job workers as well as the principal supplier who sends goods for job-work. The whole idea is to make the principal responsible for meeting compliances on behalf of the job-worker on the goods processed by him (job-worker), considering the fact that typically the job-workers are small persons who are unable to comply with the discrete provisions of the law.
The GST Act makes special provisions with regard to removal of goods for job-work and receiving back the goods after processing from the job-worker without the payment of GST. The benefit of these provisions shall be available both to the principal and the job worker.
What is job-work?
Section 2(68) of the CGST Act, 2017 defines job-work as ‘any treatment or process undertaken by a person on goods belonging to another registered person’. The one who does the said job would be termed as ‘job worker’.
The ownership of the goods does not transfer to the job-worker but it rests with the principal. The job worker is required to carry out the process specified by the principal on the goods.
Time Limits for the return of processed goods
As per section 19 of the CGST Act, 2017, inputs and capital goods after processing shall be returned back to principal within one year or three years respectively of their being sent out. Further, the provision of return of goods is not applicable in case of molds and dies, jigs and fixtures or tools supplied by the principal to job-worker.
Waste clearing provisions
Pursuant to Section 143 (5) of the CGST Act, 2017, waste generated at the premises of the job-worker may be supplied directly by the registered job-worker from his place of business on payment of tax or such waste may be cleared by the principal, in case the job-worker is not registered.
In case any inputs or semi-finished goods had been removed before the appointed date from the factory of the manufacturer and sent to a job worker for carrying further processing, testing, repair or for a similar purpose, and the same is received on or after the appointed date, no tax shall be payable if the following conditions are satisfied:
- Underlying goods are returned to the factory within 6 months from the appointed date (extendable for a maximum period of 2 months).
- Declaration of the goods held by job worker is done in specified form and manner
- Supply of semi-finished goods or finished goods is done only on payment of tax in India or the goods are exported out of India within 6 months from the appointed date (extendable by not more than 2 months).
If the underlying inputs, semi-finished goods or finished goods are not returned within 6 months or extended period, ITC availed earlier under existing laws will be recovered.
Procedures for claiming Input Credit on Job Work
- Goods purchased may be send to job worker in the following manner:
- From principal’s place of business
- Directly from the place of supply of the supplier of such goods
ITC will be allowed in both the cases.
2. Effective date for goods send depends on place of business:
- send from principal’s place of business- Date of goods send out
- send Directly from the place of supply of the supplier of such good- Date of receipt by job worker.
3. The goods send must be received back by the principal manufacture within the following period:
- Capital Goods- 3 years
- Input Goods- 1 year
from date of being send out or receipt by job worker depending on place of business from where goods are send- Refer point- 1 & 2
4. In case goods are not received within the period as mentioned in point-3 above, such goods will be treated as supply from effective date and tax will be payable on such deemed supply and the challan issued will be treated as an invoice for such supply
Inputs, as such, or partially processed inputs which are sent to a job-worker prior to introduction of GST under the provisions of existing law [Central Excise] and if such goods are returned within 6 months from the appointed day [i.e. the day on which GST will be implemented] no tax would be payable. If such goods are not returned within prescribed time, the input tax credit availed on such goods will be liable to be recovered.
If the manufactured goods are removed, prior to the appointed day, without payment of duty for testing or any other process which does not amount to manufacture, and such goods are returned within 6 months from the appointed day, then no tax will be payable. For the purpose of these provisions during the transitional period, the manufacturer and the job-worker are required to declare the details of such goods sent/received for job-work in prescribed format GST TRAN-1, within 90 days of the introduction of GST.
Input Tax credit on goods supplied to job worker
Section 19 of the CGST Act, 2017 provides that the principal (a person supplying taxable goods to the job worker) shall be entitled to take the credit of input tax paid on inputs sent to the job-worker for the job-work.
Further, the proviso also provides that the principal can take the credit even when the goods have been directly supplied to the job-worker without being brought into the premise of the principal. The principal need not wait till the inputs are first brought to his place of business.