GST Applicability on Job Work in India
What is job work?
Job work refers to the processing of inputs or semi-finished capital goods supplied by the principal to the job worker. It can be undertaken by a person whereby they convert raw materials into finished goods, including through re-work, testing, reporting etc. Job work also includes outsourced activities that may or may not culminate into the manufacture of a final product. This is because job work could entail the work process done to finish a part or whole of the process resulting in the manufacture or finishing of a product or any other essential operation.
Definition of job work under India’s GST legislation
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 person who undertakes such job is a job worker and may be registered or unregistered. Section 19 of the CGST Act, 2017 explains the definition of the Principal as ‘a person supplying goods to the job-worker.’ Here the principal is the registered owner of the goods concerned.
Why are job work processes favored?
Utilizing job work processes helps the principal/manufacturer in the following ways:
- Reduces the capital cost and operational cost of the activity – if it were to be undertaken by the principal themselves.
- Reduces the time gap between production and selling.
- Increases focus on the market (such as matching consumer needs and trends) rather than on the internal processes of machinery set-up and vocational ability.
- Gain access to efficient facilities.
What is the GST tax rate on job works?
Who has responsibility for GST compliance?
The GST regime provides various facilities as well as procedural concessions to job workers as well as the principal supplier who sends the goods for job work. The responsibility for meeting compliances, however, falls on the principal supplier – on behalf of the job worker for processing the goods.
Generally, job workers are small-scale operations or individuals who are not expected to be able to comply with the discrete provisions of the tax law. Job workers merely carry out the processing of goods, as directed by the requirements of the principal.
GST registration requirements for principal manufacturers and job workers
The registration process under GST is important for principal manufacturers as well as job workers and criteria for such registration is mentioned under Sections 22 and 23 of the Central GST Act. Registration under GST is useful for the job work sector as it has specific provisions for the sector with respect to simplified return filing, ITC claim, or GST rate applicability.
In situations where the job worker provides service that has a value greater than INR 2 million (approx. US$26,641.58) (or INR 1 million (approx. US$13,320.79) in case of special category states), they are required to register under Section 22 of the CGST Act 2017.
Starting January 29, 2019, job workers who are involved in the supply of services in relation to live poultry (for example, chicken, ducks, geese, turkeys, guinea fowls) are compulsorily required to register. GST will be charged by the job worker if the job worker is registered. The principal can claim ITC for the same.
In case of the inter-state supply of goods or services, the registration under GST is mandatory. However, job workers who are involved in inter-state supply of services in relation to jewelry, goldsmiths’ and silversmiths’ wares, and other articles are eligible for exemption from GST registration.
Procedural aspects of job work transactions under GST
Section 143, which is read along with Rule 45 of the CGST Act, explains the procedures to be followed for the purpose of job work transactions. The procedure for supplying goods to the job workers is as follows:
- The principal may send any inputs, semi-finished goods, or capital goods without payment of tax to a job worker for job work and from there subsequently send to another job worker and likewise.
- The principal can send goods for job work purpose without payment of GST under the cover of delivery challan (invoice), which shall contain the details specified in Rule 10 of the Invoice Rules. The following documents must be issued for sending the goods:
i) By principal to the job worker – the principal shall prepare three copies of delivery challan, two copies of which may be sent to the job worker along with goods.
ii) From one job worker to another job worker – goods may move under the cover of a challan issued either by the principal or the job worker. Alternatively, the challan issued by the principal may be endorsed by the job worker indicating the quantity and description of goods being sent.
iii) From the job worker back to the principal – the job worker should send one copy of the challan received from the principal when they return the goods.
iv) In piecemeal by the job worker – the challan issued originally by the principal cannot be endorsed and a fresh challan is required to be issued by the job worker.
- When the principal and job workers are located across different states, the generation of an e-way bill is mandatory – for inter-state movement of goods – irrespective of the monetary value of the transaction.
- The principal can send inputs or capital goods directly to the job worker without requiring physical presence on their premises and ITC can also be availed in such cases even though the principal has not yet received the goods.
- The inputs and/or capital goods sent to a job worker should be returned to the principal within one year and three years, respectively, from the date of sending such goods to the job worker. If such goods are not received back in time, the same will be treated as supply for GST payments and would necessitate an interest charge of 24 percent.
- After the final processing of goods, the job worker may opt for the following alternatives:
i) Send them to another job worker for further processing.
ii) Dispatch the goods to the place of business of the principal without payment of tax.
iii) Clear the goods on payment of tax within India or without payment of tax for export outside India on fulfilment of conditions.
Filing GST return for goods supplied for job work
The principal is responsible for keeping proper accounts on the inputs or capital goods sent to/returned from or supplied from the place of the job worker. This intimation is to be furnished in the GST Return Form ITC-04.
The principal is required to file ITC-04 by the 25th day of the month succeeding the quarter (or any extended date as may be notified by the tax department).
Waste and scrap generated during the job work
Clause 5 of Section 143 of the CGST ACT, 2017 details the treatment of waste and scrap generation:
- If the job worker is registered, then the waste and scrap material can be supplied by the job worker directly from their place of business, on payment of appropriate tax applicable on the said waste/scrap.
- If the job worker is unregistered, then the waste/scrap generated should be returned to the principal along with the goods. Subsequently, this waste/scrap can be supplied by the principal on payment of tax. The principal may supply waste/scrap directly from premises of the job worker under the invoice on payment of tax.
- The principal should also maintain proper records of clearance of waste / scrap from the premises of the job worker.
Input tax credit for job worker
Section 19 of the CGST Act, 2017 provides that the principal is entitled to take the credit of input tax paid on inputs/capital goods sent to the job worker for the job work. Input tax credit can also be availed in cases where the principal has not received the goods on their premises and the said goods have been directly supplied to the job worker.
To prevent confusion regarding key GST compliances and tax reporting requirements, business enterprises are welcome to reach out to our professional tax advisors at firstname.lastname@example.org.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to email@example.com for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.