What is Job Work?
Job work is a major portion of our GDP, and it includes various outsourced activities that may or may not end up into manufacturing. It is the treatment or process on goods that is undertaken by a person belonging to another registered person. The goods may be raw materials, component parts, semi-finished goods. The resultant goods would vary from the products that were sent for the job work.
The GST Act 2017, had made special provisions with regards to the removal of goods from job work and receiving back the goods after processing and final touch from the job-worker without any payment of the GST. The benefits of the provisions of the GST Act 2017, would be available to both the principal and the job worker.
As per Section 2(68) of the CGST Act 2017, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly;
That means the ownership of the goods is not transferred to the job worker but remains, with the principal (who sent goods). The job worker overall is required to carry out the process specified by the principal on the goods as per the requirement.
Principal, on the other hand, means the person to whom the goods belong. As per section 2 (88) of CGST Act 2017, “principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both;
That means a person on whose behalf a front man carries on the business of supply or receipt of goods or services or both.
GST registration on Job Work
A job contract can be commenced by the principal with a third party job work service or a job work provider by declaring the additional place of business in the GST registration. This additional place of business is the premises of the job worker. If the job worker is already registered under the GST, then declaring the premises of the job worker is not required.
Is the Job Worker Required to Register?
As the job work is a service, the job worker is required to register if his/her annual turnover exceeds the threshold of ₹ 20 lakh. The supply of goods post the completion of the work by the job worker would be treated as the supply of goods by the principal and would not be included in the annual turnover of the registered job worker.
Also, the goods of the principal directly supplied from the job worker’s premises will not be included in the job workers turnover. But the value of goods or services used by the job worker for carrying out the job would be included in the value of services supplied by the job worker.
Let’s assume there are two parties involved, party A, who is the principal and party B who is a job worker. Goods worth ₹ 50, 00,000 lakhs are sent by party A to B for processing, and the transportation charges of Rs 10,000 are incurred by A. The Job worker charges ₹ 4,00,000 for the work. The transportation charges of ₹ 12,000 which are paid by B would be charged to party A. Also goods can be sent for job work from one job worker to another without the payment of duty.
The procedural aspects of Job Work
The government has provided certain Facilities under certain conditions. Let’s look at some of these:
A) The principal who is a registered person can send capital goods without the payment of tax to a job worker and after the completion of the work can bring back such goods without the payment of tax. The principal in such a case is not required to reverse the ITC availed on inputs or capital goods dispatched to a job worker.
B) The principal can also send the capital goods directly to the premises of the job worker, i.e., without bringing the goods at his business location. The credit of tax paid on such inputs or capital goods can still be availed.
C) The inputs or the capital goods sent to a job worker are required to be returned to the principal within 1 year and 3 years respectively from the date the goods were sent.
D) After the goods have been processed, the job worker may clear the goods and send it to another job worker for further processing, or he can dispatch the goods to any place of business without the payment of tax or probably he can remove the goods on payment of tax within India.
The principal may avail the facility of the supply of goods by the principal to the third party from the premises of the job worker on payment of the tax in India or without the payment of tax for export by declaring the premise of the job worker as his additional place of business in registration. If the job worker is registered person under the GST, then the declaration of the premises during the registration would not be required in that case.
Before the principal sends the goods to the job worker, the principal would be required to intimate the Jurisdictional Officer containing the details such as the inputs sent, nature of processing to be carried out. The intimation would also contain the details of the other Job Workers.
The inputs or capital goods can be sent to the job worker under cover of Challan that would need to be issued by the principal. In the entire transaction, the responsibility would be with the principal to keep a proper check on the accounts for inputs or capital goods.
To sum this up, the procedure and compliance under GST for job work would be:
1) A Challan must accompany goods sent out for work by the principal.
2) Goods sent by the principal should be received back within 1 year if these are input/semi-finished goods or 3 years if these are capital goods.
3) In cases where the goods that were sent are not received back by the principal, then such goods would be treated as supplied to the job worker by the principal.
4) Waste and scrap materials that are generated during the initial process, assembly or packaging can be sold by the job worker if he is registered under GST or the principal if the job worker does not hold the registration.
Inputs which were sent before the implementation of the GST would not attract any taxes if these are returned within 6 months from the appointed day (by appointed day we mean the day when the GST was implemented, 1st July 2017). In case the goods are not returned, and the due date passes, then the input tax credit (ITC) that was availed on such goods would have to be returned.
Some snippets to bring more clarity
Case study: Alok suiting’s, is a registered suit manufacturer for men. Alok sends 500 suits to a registered job worker, Birbal Embroiders on 15th September 2017 for some work on the cloth. Birbal returns the suits on 15th October 2017 after the completion of the job.
In this case, Birbal is the Job Worker, and no tax would be levied on the suits as these were given back to Alok within the 1 year of business.
Case study: Alok sends 500 suits for some job work to Birbal on 15th September. After the job work, the suits are supplied from Birbal’s place of business in Punjab to a customer in Punjab itself on 30th December 2017.
As the suits are supplied from Birbal’s place of business, Alok is liable to pay the tax as per the applicable rate.
Case study: Alok sends 500 suits to Birbal on 15th September 2017 but these are returned on 15th October 2018.
Now since one year has passed, the suits would be considered to be supplied to Birbal on 15th September 2017. Alok, in this case, would be liable to pay tax on the supplies with interest.
Case study: Birbal charges ₹ 20,000 for the job work that was received from Alok.
Birbal in this case also has to charge a GST of 5%, which is the rate applicable as per the textile job work charges.