GST - Job Work under GST

[CA Akash Phophalia]

Editorial Note

Model GST law has provided special procedure for removal of goods from principal manufacturer to job worker and return from job worker to principal manufacturer subject to certain conditions and limitations. This article aims at enlightening readers about the provisions related to job work.

Introduction

The definition of supply is very wide and had covered almost all sorts of transactions within its ambit. Material sent for job work is also covered under supply. Hence, GST would be payable on material sent for job work. However, law has kept this special transaction into consideration while drafting and thus it provides for special procedure for removal and receipt of goods sent on job work.

Meaning of Job work

“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 [clause 2(62) of Model GST Law, 2016.]

Thus job work means any person who undertakes any activity or carried on any process on goods belonging to another person. Such other person necessarily be a registered taxable person. If the person is unregistered one then the job work relation could not be established under GST law. Further, goods sent for job work should be taxable goods as duty liability will arise only when goods under consideration are taxable.

Meaning of Principal

Principal means person sending goods for job work is termed as ‘Principal’. He should be a registered taxable person. 

Special procedure for removal of goods on job work

The Commissioner is empowered under GST law to specifically permit this facility by special order with applicable conditions. The conditions for removal of goods for job work are yet to be specified.

Can goods be sent for job work from one job worker to another job worker

Yes, goods can be sent for job work from one job worker to another job worker without payment of duty.

Time limit for receipt of goods back from job worker

Section 43A which provides for special procedure for removal of goods on job work does not specify any time limit for receipt of goods back However, another provision contained in clause 16A specifies time limit for receipt of goods. Accordingly, inputs should be received back within the period of 180 days of receipt of goods by job worker. Further, this time limit in respect of capital goods is 2 years.

Treatment to goods received back from job worker

After completion of job-work, Principal may either (a) bring back such goods to any of his place of business, without payment of tax, for supply therefrom on payment of tax within India, or with or without payment of tax for export, as the case may be, or (b) supply such goods from the place of business of a job-worker on payment of tax within India, or with or without payment of tax for export, as the case may be.

Direct dispatch from place of job worker

The goods shall not be permitted to be supplied from the place of business of a job worker unless the “principal” declares the place of business of the job-worker as his additional place of business. However, there is some exception to it. In a case-(i) where the job worker is registered under section 19; or (ii) where the “principal” is engaged in the supply of such goods as may be notified in this behalf; goods can be supplied directly from the place of business of job worker by the principal.

Responsibility of tax and goods is of Principal

In order to avail the benefit of this special procedure the responsibility for accountability of the goods including payment of tax thereon has to be borne by the “principal”.

Input Tax Credit of goods sent for job work

The “principal” shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax on inputs sent to a job-worker for job-work if the said inputs, after completion of job-work, are received back by him within one hundred and eighty days of their being sent out:

The “principal” shall be entitled to take credit of input tax on inputs even if the input are directly sent to a job worker for job-work without their being first brought to his place of business, and in such a case, the period of one hundred and eighty days shall be counted from the date of receipt of the inputs by the job worker.

Input tax credit of capital goods sent to job worker –

The “principal” shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax on capital goods sent to a job-worker for job-worker for job-work if the said capital goods, after completion of job-worker for received back by him within two years of their being sent out.

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 their being first brought to his place of business, and in such a case, the period of two years shall be counted from the date of receipt of the capital goods by the job worker – clause 16A(2) of GST Model Law, 2016.

If inputs and capital goods not received back in specified time

Where the inputs or capital goods, as the case may be, are not received back by the “principal” within the time specified, he shall pay an amount equivalent to the input tax credit availed of on the said inputs or capital goods, along with interest under section 36(1).

The “principal” may reclaim the input tax credit and interest paid earlier when the inputs or capital goods, as the case may be, are received back by him at his place of business-clause 16A(3) of GST Model Law, 2016.

Commencement of time for payment of interest

Payment of interest shall commence from the date of expiry of 180 days or 2 years, as the case may be, although there is no specific mention to it.

Transitional provision in respect of goods sent to job worker

Presently, a manufacturer can sent material for job work without payment of excise duty. As per Model Law if inputs or/ and semi-finished goods were sent for job work prior to introduction of GST law and were lying with the job worker, declaration shall be submitted by both manufacturer and job worker within specified period. The goods can be brought back to place of Principal manufacturer within six months without payment of tax.  However, this period of six months can be extended by Commissioner for period of two months. If the material is not returned within six months (or further two months if extension is granted), tax will be payable by job worker or manufacturer.

Transitional provisions in respect of finished goods sent for test purpose

As per Model Law if finished goods were sent out for test or further process prior to introduction of GST law and were lying outside, these can be brought back within six months from date of commencement of GST law. The finished goods can also be supplied directly on payment of GST or can be exported without payment of GST as provided earlier.     

This is just for your reference and not constitutes out professional advice.

CA Akash Phophalia

ca.akashphophalia@gmail.com

9799569294