JOB WORK UNDER GST AS PER LATEST CLARIFICATION BY GST POLICY WING

[Mr. M. GOVINDARAJAN]

Definition

Section 2(68) of Central Goods and Services Tax Act, 2017 (‘Act’ for short) defines the expression ‘job work’ as any-

• treatment; or
• process

undertaken by a person on goods belonging to another person and the expression ‘job worker’ shall be construed accordingly.

Whether any activity is covered within the scope of job work or not, would have to be determined on the basis of facts and circumstances of each case.

Sending of goods by the Principal

Section 143 of the Act provides the procedure for the job work.   The principal should be a registered person.  A registered person may send any inputs or capital goods to a job worker for job work and from there subsequently and to another job worker and likewise without payment of tax.   This is subject to such conditions as may be prescribed. 

The principal shall-

• bring back inputs, after completion of job work, within one year of their being sent out to any of his place of business, without payment of tax;
• bring back capital goods (except moulds and dies, jigs and fixtures or tools),after completion of job work within three years of their being sent out to any of his place of business, without payment of tax.

The responsibility for sending the goods for job work as well as bringing them back or supply them has been cast on the principal.

This facility is available to the principal only if he declares the job worker’s place of business as his additional place of business or if the job worker is registered.

Input

The term ‘input’ includes intermediate products arising from any treatment or process carried out on the inputs by the principal or the job worker.

Maintenance of books and accounts

It is the responsibility of the Principal to keep proper accounts of the inputs and capital goods sent for job work.

Sending of goods – supply?

Since the goods are sent to a job worker by the Principal for a job work without payment of duty the sending of goods is not a supply.

Deemed supply

If the time frame of one year or three years for bringing back or further supplying the inputs or capital goods is not adhered to, the activity of sending the goods for job work shall be deemed to be a supply by the principal on the day when the said inputs/capital goods were sent out by the principal on the day when the said inputs/capital goods were sent out by him.

If the inputs or capital goods are neither returned nor supplied from the job worker’s place of business within the specified period, the principal would issue an invoice for the same and declare such supplies in his return for that particular month in which the time period has expired.  The interest for the intervening period shall also be payable on the tax.

If such goods are returned by the job worker after the stipulated period, the same would be treated as a supply by the job worker to the principal and the job worker would be liable to pay tax if he is liable for registration.  If the job worker is an unregistered person the principal is liable to pay tax under reverse charge mechanism, which is now given exemption till 30.06.2018.

Scope of job work

The GST Policy wing issues clarification on issues related to job work vide their circular No. 38/12/2018, dated 26.03.2018 (‘circular’ for short).  The said circular clarifies the scope of job work.  Whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work?  The circular clarifies that the job worker is expected to work on the goods sent by the principal.  The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Registration by job worker

The circular clarifies the issue on 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. 

The circular clarifies 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 (Rs.20 lakhs or ₹ 10 lakhs in case of special category of 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 job worker is required to be registered compulsorily under the provisions of section 24(i) of the Act which provides compulsory registration of suppliers making any inter-State supply of services.  However exemption from registration has been granted in case the aggregate turnover of inter-State supply of taxable services does not exceed ₹ 20 lakhs or ₹ 10 lakhs vide Notification No. 10/2017-Integrated tax, dated 13.10.2017. 

As such the circular clarifies that the job worker is 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.

Supply to end customers by job worker

Another raised in respect of job work by the stakeholders is whether the principal can supply goods directly from the job worker’s place of business to its end customers.  If yes, whether the supply will be regarded as having been made by the principal or by the job worker?

The circular clarifies that the supply of goods by the principal from the place of business of the job worker will be regarded as supply by the principal and not by the job worker.  Further it would amount to bring back inputs after completion of the job work by the principal.

Challan

Rule 45 of Central Goods and Services Tax Rules, 2017 (‘Rule’ for short) provides that the inputs, semi-finished goods or capital goods being sent for job work (including that being sent from one job worker to another job worker) shall be sent under the cover of a challan issued by the principal.  The said challan shall contain the details as specified in Rule 55. 

The job worker should send one copy of the challan received by him from the principal while returning the goods of the principal after carrying out the job work.

In case the goods after carrying out the job work are sent in piecemeal quantities by a job worker to another job worker or to the principal, the challan issued originally by the principal cannot be endorsed.  A fresh challan is required to be issued by the job worker.

Endorsement of challan

Where goods are sent from one job worker to another job worker, the goods may move under the cover of a challan issued either by the principal or by the job worker or the challan issued by the principal may be endorsed by the job worker sending the goods to another job worker, indicating the quantity and description of goods being sent.  This process may be repeated for subsequent movement of the goods to other job workers.

Movement of goods directly by the supplier to the job worker

The goods may move from the place of business of the supplier to the place of business of the job worker with a copy of the invoice issued by the supplier in the name of the principal wherein the job worker’s name and address should also be mentioned as the consignee.  The principal (buyer) shall issue the challan and send the same to the job worker directly. 

In case of import of goods by the principal which are then supplied directly from the customs station of import, the goods may move from the customs station of import, the goods may move from the customs station of import to the place of business of the job worker with a copy of the Bill of Entry.  The principal shall issue the challan and send the same to the job worker directly.

Quarterly return

The principal is required to file Form ITC – 04 every quarter furnishing the details of challans in respect of goods sent to a job worker or received from a job worker or sent from one job worker to another job worker by 25^th day of the month succeeding the quarter or within such period as may be determined by the Commissioner.

The circular clarifies that it is the responsibility of the principal to include the details of all challans relating to goods sent by him to one or more job worker or from one job worker to another and its return there from.

E-way bill

Rule 138 provides that an e-way bill is required to be generated by every registered person who causes movement of goods of consignment value exceeding ₹ 50,000/-.  The third proviso to Rule 138 provides that the e-way bill shall be generated by the principal or by the registered job worker irrespective of the value of the consignment, where goods are sent by a principal located in one State/Union territory to a job worker located in any other State/Union territory.

The circular clarifies the e-way bill shall be generated by the principal, wherever required in case the job worker is unregistered.

Clarification to the issue of invoice,  time of supply and value of supply

The circular clarifies that the job worker is liable to pay tax if he is liable to be registered.   He shall issue an invoice at the time of supply of the services.  The value of services would be determined in terms of section 15 and would include not only the service charges but also the value of any goods or services used by him for supplying the job work services, if recovered from the principal.

The circular clarifies that the value of moulds and dies, jigs and fixtures or tools may not be included in the value of job work services, provided its value has been factored in the price for supply of such services by the job worker. 

If the job worker is not registered the principal is liable to pay tax under reverse charge mechanism.  This provision is kept in abeyance till 30.06.2018.

If the goods are sent from the principal to the job worker, the circular clarifies that the time, value and place of supply would have to be determined in the hands of the principal irrespective of the location of job worker’s place of business.  The invoice should have to be issued by the principal.  In case of exports directly from the job worker’s place of business, the LUT or bond shall be executed by the principal.

Input tax credit

The circular clarifies that the input tax credit would be available to the principal, irrespective of the fact whether the inputs or capital goods are received by the principal and then sent to the job worker for processing etc., or whether they are directly received at the job worker’s place of business without being brought to the premises of the principal.  The job worker is also eligible to avail input tax credits used by him in supplying the job work services if he is registered.