It is normal course of business by big corporations to get their branded products manufactured by others by providing their own raw material. Such manufacturing includes, processing of inputs, re-processing of inputs, testing of goods or any other treatment on goods/inputs. This process is known as job work.
The main feature of Job work is that “Primary Inputs” are being provided by such corporations to job workers to undertake some process or treatment on these inputs. In this transaction, there is no need to pay tax by Principal on supply of goods to job-worker (subject to terms and conditions discussed in this article).
As per section 2(68) of CGST Act, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person.
The person doing job work is called as “job worker” and the provider of goods is known as “Principal” or “Principal Supplier” under GST.
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.
Job Work Procedures under GST
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Step-1 Principal will issue goods under “Delivery Challan for Job Work” |
>>>>> | Step-2
Job worker will process the goods as per instructions of Principal |
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Step-3 Job worker will send the goods as per instructions of Principal |
Step-1: Principal will issue goods under “Delivery Challan for Job Work”
- Goods allowed to send to job worker may include:
- Inputs
- Semi-finished Goods
- Capital Goods
- Any goods sent to the job worker should be under the cover of a Delivery Challan (instead of Tax Invoice) issued by Principal to Job-Worker, either such goods are sent directly to a job-worker or such goods are sent from one job-worker to another job-worker.
- However, 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.
- In case the challan is issued by the principal, such challan may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
- And, the challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
- Such Delivery Challan should include following components:
- Such delivery challan should be serially numbered not exceeding sixteen characters, in one or multiple series
- date and number of the delivery challan;
- name, address and Goods and Services Tax Identification Number of the consigner, if registered;
- name, address and Goods and Services Tax Identification Number or Unique Identity Number of the consignee, if registered;
- Harmonised System of Nomenclature code and description of goods;
- quantity (provisional, where the exact quantity being supplied is not known);
- 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
4. The delivery challan shall be prepared in triplicate, in case of supply of goods, in the following manner, namely:–
(a) the original copy being marked as ORIGINAL FOR CONSIGNEE;
(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and
(c) the triplicate copy being marked as TRIPLICATE FOR CONSIGNER.
5. Details of such delivery challan must be submitted as per ‘E-Way Bill’ Rules as and when such rules come into force.
6. The above said details of challans in respect of goods dispatched to a job worker or received from a job worker or sent from one job worker to another during a quarter shall be included in FORM GST ITC-04 furnished for that period on or before the twenty-fifth day of the month succeeding the said quarter.
7. Principal should be responsible for maintenance of proper books of accounts for the inputs or capital goods sent to job worker or received back thereafter.
Step-2 : Job worker will process the goods as per instructions of Principal
After goods being received by job worker from Principal, duty of job-worker begins to process the goods as per the manner specified by principal.
Step-3 : Job worker will send the goods as per instructions of Principal
After completion of job work, job-worker will send the goods as per instructions of Principal. As per GST law, such instructions can be either of following types:
(a) To send back goods to Principal
(b) To send goods to another Job-worker for further processing of goods
(c) To send goods directly to the customer of Principal
We will discuss Case (a) and Case (b) simultaneously as follows:
- There is no need to pay taxes on goods when job worker sends back goods to Principal. (However, job worker will charge tax on service charges, where such job-worker is an independent registered person under GST).
- There is no need to pay taxes when job worker sends goods to another job-worker and such another job worker sends back goods to Principal.
- Job-worker will issue delivery challan and will follow all instructions in respect to delivery challan as specified in Step-1 above.
- 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.
- In case the challan is issued by the principal, such challan may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
- And, the challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
- There are certain time limit to bring back inputs/capital goods by Principal from the place of any or all Job-worker , which are as follows:
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Inputs |
Capital Goods
(other than Moulds, dies, jigs and fixtures, or tools) |
Moulds, dies, jigs and fixtures, or tools |
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Within One year from the date of being sent out to job worker |
Within Three years from the date of being sent out to job worker |
No Time Limit |
Where the Inputs/Capital Goods are sent directly from a job worker (or from a vendor) to (another) job worker, the period of One year/Three Year shall be counted from the date of receipt of inputs/Capital Goods by the (another) job worker.
Case- (c) : To send goods directly to the customer of Principal
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Principal >>>> |
Last Job Worker >>>> |
Customer of Principal |
There are certain time limits to supply such inputs/capital goods by Principal from the place of Job-worker to its Customer, which are as follows:
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Inputs
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Capital Goods (other than Moulds, dies, jigs and fixtures, or tools) |
Moulds, dies, jigs and fixtures, or tools |
| Within One year from the date of being sent out to job worker | Within Three years from the date of being sent out to job worker |
No Time Limit |
To send goods directly to the customer of Principal, following two situations to be analysed :
Situation 1: Where Job Worker is registered person under GST
- Job worker will issue tax invoice to Principal for service charges along with Tax.
- Job-worker will issue delivery challan and will follow all instructions in respect to delivery challan as specified in Step-1 above to move out goods from his place to place of Customer.
- Principal will issue his Tax invoice/ Bill of supply to its customer.
Situation 2: Where Job Worker is not registered person under GST
- Principal will first declare “the place of Job-worker” as his additional place of business.
- Job-worker will issue delivery challan and will follow all instructions in respect to delivery challan as specified in Step-1 above to move out goods from his place to place of Customer.
- Principal will issue his Tax invoice/ Bill of supply to its customer.
What if time Limits specified in Case (a), (b), or Case (c) not followed
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Inputs not received back or supplied within one year |
Capital Goods not received back or supplied within Three years |
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It shall be deemed as sales on the date when inputs were originally sent out to job worker |
It shall be deemed as sales on the date when inputs were originally sent out to job worker |
| It has effect that interest on late payment to be paid for one year (i.e. from the date of supply to the date of deemed sale) |
It has effect that interest on late payment to be paid for three year (i.e. from the date of supply to the date of deemed sale) |
How to deal with any scrap/waste arises during the course of processing of goods by Job Worker:
- For such scrap/waste, time limits of one year/ three years are not applicable.
- They can be sold directly by Job-worker if he is registered one.
- If job-worker is unregistered under GST, they should be sold by Principal Supplier.
Job work provisions will be applicable mutatis mutandis to IGST, UTGST and SGST.
Tax Rate applicable on Job Work Charges : Click here
Various clarifications are issued by CBIC on Job Work system through its Circular 38/12/2018-GST dtd 26.03.2018.
Scope/ambit of job work:
Doubts have been raised on the scope of job work and 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.
It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person.
Thus, the job worker is expected to work on the goods sent by the principal and whether the 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. 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.
Requirement of registration for the principal/ job worker
Provisions of section 143 of the CGST Act are applicable to a registered person only. Thus, it is only a registered person who can send the goods for job work under the said provisions. 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.
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
Supply of goods by the principal from job worker’s place of business / premises
Doubts have been raised as to whether the principal can supply goods directly from the job worker’s place of business / premises to its end customer and if yes, whether the supply will be regarded as having been made by the principal or by the job worker.
It is clarified that the supply of goods by the principal from the place of business / premises of the job worker will be regarded as supply by the principal and not by the job worker as specified in section 143(1)(a) of the CGST Act.
Movement of goods from the principal to the job worker and the documents and intimation required therefor
Where goods are sent by principal to only one job worker:
The principal shall prepare in triplicate, the challan in terms of rules 45 and 55 of the CGST Rules, for sending the goods to a job worker. Two copies of the challan may be sent to the job worker along with the goods. The job worker should send one copy of the said challan along with the goods, while returning them to the principal. The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act, 2017.
Where goods are sent from one job worker to another job worker:
In such cases, the goods may move under the cover of a challan issued either by the principal or the job worker. In the alternative, the challan issued by the principal may be endorsed by the job worker sending the goods to another job worker, indicating therein the quantity and description of goods being sent. The same process may be repeated for subsequent movement of the goods to other job workers.
Where the goods are returned to the principal by the job worker:
The job worker should send one copy of the challan received by him from the principal while returning the goods to the principal after carrying out the job work.
Where the goods are sent directly by the supplier to the job worker:
In this case, the goods may move from the place of business of the supplier to the place of business/premises of the job worker with a copy of the invoice issued by the supplier in the name of the buyer (i.e. the principal) wherein the job worker’s name and address should also be mentioned as the consignee, in terms of rule 46(o) of the CGST Rules. The buyer (i.e., the principal) shall issue the challan under rule 45 of the CGST Rules and send the same to the job worker directly in terms of para (i) above. 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 to the place of business/premises of the job worker with a copy of the Bill of Entry and the principal shall issue the challan under rule 45 of the CGST Rules and send the same to the job worker directly.
Where goods are returned in piecemeal by the job worker:
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 and a fresh challan is required to be issued by the job worker.
Submission of intimation:
Rule 45(3) of the CGST Rules provides that the principal is required to furnish 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 during a quarter in FORM GST ITC-04 by the 25th day of the month succeeding the quarter or within such period as may be extended by the Commissioner. It is clarified that it is the responsibility of the principal to include the details of all the challans relating to goods sent by him to one or more job worker or from one job worker to another and its return therefrom. The FORM GST ITC-04 will serve as the intimation as envisaged under section 143 of the CGST Act.
