Job work is very lucrative and most commonly pursued business in the Indian Economy. This led to the requirement of extensive provisions to be inbuilt in the GST law. 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 job workers, considering the fact that typically the job- workers are small persons who are unable to comply with the discrete provisions of the law.
Key Points to be noted in job work as explaining in the above image are: –
- The job worker is required to register if his turnover excluding the job work supplies on which the principal is paying the tax, exceeds twenty lakhs.
- Principal to mention the location of the job worker as his additional place of business.
- A principal can send inputs and capital goods to job worker without reversing the credit and can also send directly without first receiving at his location.
- Goods to be sent and received back on the basis of delivery challan and E-way bill to be issued.
- Documents to be maintained by the principal.
- Scrap can be removed from job worker location on payment of duty.
In this article we are covering the below topics to provide comprehensive tax knowledge around job work and the compliance requirements: –
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.
Job Work Applicability In Excise & Service Tax Laws
- The taxable event in excise was “manufacture”. Hence due liability was raised only when the process of job work amounted to manufacture. There have been numerous cases debating whether the process amounts to manufacture or not and it can be concluded that where the product undergoes a change and a new article having a distinctive name, character or use emerges, it will amount as manufacture and excise duty will be charged.
- It is imperative to note the provisions of Notification No 214/86 – Central Excise, dated 25th March 1986 which provided for Exemption to specified items if manufactured in a factory as a job work and used in the manufacture of final products or cleared as such from the factory of supplier of raw material or semi-finished goods.
- The notification prima facie exempted goods manufactured by a job worker provided the goods are returned to the principal or cleared for home consumption on payment of excise duty.
- Where the goods are returned to the principal, the principal should either clear it on payment of duty or use it in his manufacturing process which should result in the manufacture of a dutiable product.
- Additionally, the SSI exemption was available to the job workers. Under the provisions of the Central Excise Act, a Small Scale Industry is one whose aggregate value of Turnover does not exceed INR One Hundred and Fifty Lakhs made on or after the 1st day of April in any financial year. It was also provided that the job work done under Notification 21/86 explained above, shall not be counted for the purpose of determining the threshold amounts as per the SSI exemptions.
- Wherever the job work does not amount to manufacture it was outside the ambit of Excise duty and hence service tax comes into the picture.
Service Tax: –
- As per Section 66D of the finance act (hereinafter referred to as ‘Negative List’), any process amounting to manufacture or production of goods (a process on which excise duty is levied) is not taxable service and hence no service tax can be levied.
- Notification No 25/ 2012 – Service Tax, dated 20th June 2012 which is commonly called the mega exemption list, exempted job work in relation to any goods on which appropriate duty is payable by the principal manufacturer.
- However this excluded job work in relation to goods on which duty leviable is NIL rate or wholly exempted from tax.
- Where the principal accepts the liability to be paid on behalf of the job worker, the availability of CENVAT CREDIT comes into picture which is provided under Rule 4(5) of Cenvat Credit Rules, 2004. The provisions of availing credit are explained herewith : –
The principal can send materials / semi-finished goods to job worker and avail credit on such materials or goods;
Inputs and capital goods can also be sent directly to the location of the job worker without first receiving at the place of principal;
Inputs should be received back in the factory within 180 days of goods being sent to the job worker;
Capital Goods should be received back within 2 years;
In case the inputs or capital goods are directly sent to the job worker location, the period of 180 days or 2 years as the case may be, shall be reckoned from the date of receipt by the job worker;
The requirement of getting back the goods to the place of principal is not applicable for jigs, fixtures, molds and dies
Proper records have to be maintained by the principal;
The movement should be under the cover of a challan.
- The provisions as applicable for job work in the service tax regime are continued in the GST regime with the necessary tweaks. The provisions under GST are explained in subsequent points.
Registration Requirements Relating to Job Work and Principal
- As per Section 22 of The Central Goods and Services Tax Ac, 2017 (hereinafter referred to as ‘CGST Act’), every supplier shall be required to be registered if his aggregate turnover exceeds twenty lakhs. (For special category states, the limit is ten lakhs.)
- As per second explanation to Section 22 of CGST Act, the supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker.
- As per Section 24 of the CGST Act, persons making any inter-state taxable supply shall be required to obtain compulsory registration.
- Further as per Section 143, “…Provided that the principal shall not supply the goods from the place of business of a job worker in accordance with the provisions of this clause unless the said principal declares the place of business of the job worker as his additional place of business except in a case-(i) where the job worker is registered under section 25; or (ii) where the principal is engaged in the supply of such goods as may be notified by the Commissioner.”
- As per Notification No 7/2017 – Integrated Tax dated 14th September 2017, the job workers engaged in making the inter-State supply of services to a registered person is exempted from obtaining registration other than a job worker required to get registered as per Section 22 of CGST Act.
- As per Notification No 10/2017 – Integrated Tax dated 13th October 2017, persons making inter-State supplies of taxable services and having an aggregate turnover not exceeding an amount of Rs. 20 lakhs in a financial year are exempted from obtaining registration.
- As per Circular 38/12/2018 dated 26 March 2018 (as amended) “…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 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.”
- Also, as per Circular 38/12/2018 dated 26 March 2018 (as amended) “…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….. (ii) Supply of goods by the principal from the place of business/ premises of job worker: Section 143 of the CGST Act provides that the principal may supply, from the place of business/premises of a job worker, inputs after completion of job work or otherwise or capital goods (other than molds and dies, jigs and fixtures or tools) within one year or three years respectively of their being sent out, on payment of tax within India, or with or without payment of tax for exports, as the case may be. This facility is available to the principal only if he declares the job worker’s place of business/premises as his additional place of business or if the job worker is registered. Since the supply is being made by the principal, it is clarified that the time, value and place of supply would have to be determined in the hands of the principal irrespective of the location of the job worker’s place of business/premises. Further, the invoice would have to be issued by the principal. It is also clarified that in case of exports directly from the job worker’s place of business/premises, the LUT or bond, as the case may be, shall be executed by the principal.
Basis the provisions explained above, it can be inferred that job worker is required to obtain registration only if the supplies, excluding the supplies to the principal, exceeds twenty lakhs in a financial year.
Input Tax Credit
- As per Section 19 of CGST Act, “…(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job-work without being first brought to his place of business.”
- As per Rule 45 of CGST Rules, 2017 “…(1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a job-worker, and 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…”
- As per Circular 38/12/2018 dated 26 March 2018 (as amended) it is clarified “…(iv) 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 working 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 working 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…”
- Hence, if the conditions of Section 16(2) of the CGST Act have been fulfilled, the principal can take the credit of inputs and capital goods directly sent to the job worker as well as those received at the location of the principal and subsequently sent to job worker.
- Rule 45 of The Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “CGST Rules”, the goods shall be sent under a cover of a challan containing the details as required under Rule 55 of the Rules.
- The challan issued by the principal 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.
- 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.
- As per Circular 38/12/2018 dated 26 March 2018 (as amended) it is clarified “…(i) Where goods are sent by the 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. …. (v) 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…”
- Rule 55 of The Central Goods and Services Tax Rules, 2017, provides for the transportation of goods for job work wherein the consigner may issue a delivery challan, serially numbered not exceeding sixteen characters, in one or multiple series, in lieu of invoice at the time of removal of goods for transportation, containing the following details, namely:-
- 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
E-Way Bill Regulations
- As per Rule 138 of The Central Goods and Services Tax Rules, 2017, where goods are sent by a principal located in one State or Union territory to a job worker located in any other State or Union territory, the e-way bill shall be generated either by the principal or the job worker, if registered, irrespective of the value of the consignment.
- E-Way Bill is required to be generated before the movement of goods by the Principal to the Job Worker or by the registered Job Worker to the Principal or to another Job Worker.
- As per section 143 (5) of the CGST Act, 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. Job-worker are required to pay tax on such supply.
- However, if a job-worker is not registered then such waste may be cleared by the principal manufacturer and GST would be payable by the principal manufacturer.
The rates for supply of services under GST are provided majorly in Notification No 11/2017 – Central Tax (Rate) dated 28th June 2017 and modified from time to time. Relevant extract pertaining to job work is reproduced as under to provide the rate applicable for job work of the varied type of services:
Sr. No. of Notification
|Heading||Description of Service|
|Heading 9986 – Support services to agriculture, hunting, forestry, fishing, mining and utilities||Carrying out an intermediate production process as job work in relation to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fiber, fuel, raw material or other similar products or agricultural produce.||NIL|
|Heading 9988 – Manufacturing services on physical inputs (goods) owned by others||As per point no (i)|
Services by way of job work in relation to
(a) Printing of newspapers
(b) Textiles and textile products falling under Chapter 50 to 63 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
(c) all products , other than diamonds, falling under Chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
(d) Printing of books (including Braille books), journals and periodicals;
(da) printing of all goods falling under Chapter 48 or 49, which attract CGST @ 2.5per cent. or Nil;]
(e) Processing of hides, skins, and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975);
(ea) manufacture of leather goods or footwear falling under Chapter 42 or 64 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975) respectively;
(f) all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
(g) all products falling under Chapter 23 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975), except the dog and cat food put up for retail sale falling under tariff item 23091000 of the said Chapter
(h) manufacture of clay bricks falling under tariff item 69010010 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
(i) manufacture of handicraft goods
|Heading 9988 – Manufacturing services on physical inputs (goods) owned by others||As per point no (ia)|
Services by way of job work in relation to –
(a) manufacture of an umbrella;
(b) printing of all goods falling under Chapter 48 or 49, which attracts CGST @ 6per cent.
|Heading 9988 – Manufacturing services on physical inputs (goods) owned by others||As per point no (ib)|
Services by way of job work in relation to diamonds falling under chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
|26||Heading 9988 – Manufacturing services on physical inputs (goods) owned by others||As per point no (ic)|
Services by way of job work in relation to bus bodybuilding
|26||Heading 9988 – Manufacturing services on physical inputs (goods) owned by others||Services by way of job work not covered above||12.00%|
The understanding of job work laid above is supported in the advance ruling provided by Authority for Advance Ruling, Kerala in the case of M/s. Industrial Engineering Corporation. The ruling is summarized below: –
Facts of the Case: –
- An applicant is a manufacturer of packing containers;
- An applicant is planning to execute an order through another firm in the same line of business;
- Applicant purchases raw materials and supplies as such directly to the job worker;
- Finished goods shall be directly sent from the job worker location to prospective customers;
- An advance ruling is sought for the following: –
Rate of Tax
Restrictions under GST law for the supply of materials
Documents to be maintained by the applicant
Implications of GST on consumables added by the job worker himself and added to the job work charges
Taxability of scrap
Ruling Pronounced: –
- Rate of Tax: –
Basis the facts made available, it was pronounced that the rate of tax applicable is 18% as per Si No. 26 (iv) – Manufacturing services on physical inputs (goods) owed by others, other than (i), (ia), (ii), (iia) and (iii) above of Notification No. 11/2017 Central Tax (Rate) dated 28th June 2017 which is the principal notification providing the rate of tax for all the services.
- Restrictions under GST Law for the Supply of Materials: –
As per Section 143 of the CGST/SGST Act, 2017; the registered principal may, without payment of tax, send inputs or capital goods to a job worker for job work and, if required, from there subsequently to another job worker and so on. Subsequently, on completion of the job work, the principal shall either bring back the goods to his place of business or supply the same directly from the place of business/premises of the job worker within one year in case of inputs or within three years in case of capital goods.
- Documents to be Maintained by the Applicant: –
As per the provisions of Section 143 (1) of the CGST Act, 2017 the principal can supply goods directly from the place of business/premises of the job worker to its end customer. The supply of goods by the principal from the place of business/premises of the job worker to the end customer will be regarded as supply by the principal and not by the job worker. If the job worker is not registered then the principal shall declare the place of business of the job worker as his additional place of business.
As per Rule 45 of the CGST/SGST Rules, 2017; the inputs, semi-finished goods or capital goods shall be sent to the job worker and received back by the principal under the cover of a delivery challan containing particulars as prescribed in Rule 55 ibid issued by the principal, including where such goods are sent directly to a job worker. The principal is required to file FORM GST ITC-04 every quarter furnishing the details of the goods sent for job work.
- Implications of GST on Consumables Added by the Job Worker himself and Added to the Job Work Charges: –
The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.
The job worker, as a supplier of services, is liable to pay GST at the applicable rate. The job worker shall issue an invoice at the time of supply of the services & determined in terms of Section 13 read with Section 31 of the CGST/SGST Act. The value of services would be determined in terms of Section 15 of the CGST/SGST Act 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. The use of own goods by the job worker in addition to the goods supplied by the principal for job work will not change the nature of the activity and will have no bearing on the rate of GST applicable for the job worker.
- Taxability of Scrap: –
As per sub-section (5) of Section 143 of the CGST/SGST Act, 2017; any waste and scrap generated during the job work may be supplied by the registered job worker directly from his place of business on payment of tax, or by the principal if the job worker is not registered.