Job work or job work procedure is the significant part of the manufacturing industry. Rather than investing in huge machinery nowadays manufacturers are preferring to outsources there activities like further processing, testing, repairs, re-conditioning. The advantage of Job work procedure in GST law is that the goods can be sent out for further processing and received back without payment of tax.
In this article, we have explained in detail the job work procedure, tax implications and various forms required to be filed.
Definition of Job work under GST Law
Section 2(68) of CGST Act defines Job work or Job work procedure as any treatment or process is undertaken by a person on goods belonging to another registered person. Here, the person undertaking the treatment or process is a job worker, and goods on which treatment is undertaken belong to the principal who is the registered person under GST.
Job work procedure
In the job work process, the principal sends the semi-finished goods or the raw material or the capital goods for the further processing/manufacturing to the job worker. After completing the process, the final or semi-finished goods are sent back to the principal or another job worker.
GST implication on Job work procedure
No GST is charged for the goods sent by the principal to the Job Worker.
The principal(owner of the goods) can take the ITC on the tax paid for the purchase of input or capital goods which are
- directly sent by the supplier to the premises of the job worker or
- send from the premises of the principal to the job worker
The condition for claiming ITC by the principal
- The only condition for claiming the ITC is that the goods send, must be received back within the following time limit
Input goods- within 1 year
Capital goods- within 3 years - If the goods are not received back by the principal within the above time limit then the ITC claimed earlier will be reversed. It will be treated as deemed supply. The reversal of ITC means the amount of ITC will be added to the GST liability of the principal.
- If the job worker returns the goods to the additional place of business of the principal(as mentioned in the registration certificated) or to another job worker it will be deemed to be received by the principal.
- The above time limit of 1yr and 3yrs does not apply to molds and dies, jigs and fixtures, or tools sent out to a job worker for job work procedure.
- For counting the time limit of 1yr or 3 yrs the effective date shall start from-
date on which goods are sent out- if goods send by from principal place for the business
date when goods were received – if goods are directly received from the supplier
Challan, E-way bill and intimation to the department
Inputs/ semi-finished goods/ capital goods send by the principal shall be accompanied by the challan. It will be issued even for the inputs or capital goods sent directly to the job-worker.
The content of the challan-
- Date and number of the delivery challan
- Name, address, and GSTIN of the consigner, if registered
- Name, address and GSTIN or Unique Identity Number of the consignee, if registered
- HSN Code, Quantity,taxable value
- Tax rate and tax amount central tax, State tax, integrated tax, Union territory tax or cess, where the transportation is for supply to the consignee
- Place of supply, in case of inter-State movement and
- Signature
Details of the challan to be added in form GST ITC -04
This form shall be submitted quarterly. Due for submitting the form is – on or before the 25th day of the month succeeding the said quarter
For example- for the quarter of April to June due date will be the 25th of July.ITC -04 shall contain the following details –
- Goods dispatched to a job worker or
- Received from a job worker or
- Sent from one job worker to another
Intimation of Job Work Procedure to department
The principal would be required to intimate the Jurisdictional Officer containing the details of inputs intended to be sent by the principal and the nature of processing to be carried out by the job worker. The said intimation shall also contain the details of another job worker if any.
The issue of E-way bill
It is mandatory to issue the E-way bill in the following situations-
- interstate movement of goods from principal to job worker and
- intrastate movement of goods if the value of goods is more than Rs 50,000
On completing the Job work procedure, on the direction of the principal can either send them back to the principal or supply to the customers.
In such situation, job worker if registered on E-way bill portal shall generate the E-way bill and if he is not registered then the principal will generate the e-way bill.
Therefore the documents to be carried by the transporter are-
- E-way bill
- delivery challan
- Invoice if the goods are directly sent to the job worker
Some Important terms under GST law
Intermediate Product
When the certain process is carried out on the input, the product after such a process is referred to as an intermediate product. No tax is levied for supplying such an intermediate product to job worker or further process.
Capital goods
Capital goods include plant and machinery which are
- Apparatus,
- Equipment,
- Machinery which has been fixed on earth by any foundation or structural support
- Foundation and structural support by which machinery has been fixed on earth
The following items are specifically excluded from the scope of plant and machinery-
- Land, building or any other civil structures
- Telecommunication towers
- Pipelines laid outside the factory premises
- Extension of pipelines outside the factory
Principal
The principal means the registered person under GST law, who is sending goods to the job worker for job work procedure without payment of tax.
Summary of the above information
| Situations | GST provisions |
| Inputs send by the principal to the job worker | After completing the job work procedure activity, goods / semi-finished goods must be returned back to the principal within 1 year |
| Capital goods send by the principal to job worker | On completing the job work procedure activity, the capital goods must be returned within 3yrs. |
| Inputs and capital goods directly send to job worker from the vendor/supplier | The principal can take the credit of ITC even if goods are directly delivered to job workers location |
| Finished goods/final product directly delivered to the customer from the premises of the job worker | GST will be paid by the principal in both the following situation-
|
| Inputs/capital goods /semi-finished goods/ final product returned back to the principal | Job worker shall return back the inputs/ within 1 yr. and capital goods within 3yrs |
| Registration | Job worker shall take the registration under GST Law if his aggregate turnover exceeds Rs.20 lakhs(10 lakhs for specified states) |
| Waste and scarp | Return -There is no time limit for returning the waste to the principal.
Sold by Job worker-If job worker is a registered person he shall pay the GST on such a sale, but if he is not registered then principal shall pay the GST
|
Conclusion
In conclusion, this article dives into job work procedure in manufacturing, exploring its tax implications under GST.
Outsourcing tasks like processing and testing streamlines operations, boosting efficiency. Detailed procedures for sending goods, reclaiming tax credits, and meeting documentation requirements are crucial for navigating GST regulation.
Embracing job work procedure optimizes resources and ensures compliance, enhancing competitiveness in manufacturing.
Also Read:
GSTR 3b Tips: Meaning, Filing & Format
GST- A Guide For Small Business Owners
