Taxation of Job Work under the Model GST Law
By Dezan Shira & Associates
Editor: Melissa Cyrill
The upcoming Goods and Services Tax (GST) is a landmark reform consolidating India’s indirect taxes. It will also widen the tax ambit by covering those potential taxpayers who were hitherto not under the tax net either due to the nature of their activity not being taxable or due to exemption claims. One such category will be the expanded taxation scope for job workers.
Defining Job Work in Indian Tax Law
Under the prevailing central excise tax law, ‘job work’ refers to the processing or work done on raw materials or semi-finished goods that are supplied to the job worker. The job work constitutes a part of or the whole operation process, which results in the manufacture or finishing of a good.
A job worker is, thus, the person engaged in the manufacture or production of goods on behalf of a principal manufacturer, and works on the inputs or raw materials supplied by the said principal manufacturer or a person authorized by him/her.
The Model GST Law (MGL) expands the defining scope of job work. Under Section 2(62) of the MGL, job work is understood to mean any treatment or processing done by a person on goods belonging to another registered taxable person (Principal Manufacturer), thereby covering actions like repairs, maintenance, standardization, testing etc.
Moreover, as a job worker is a supplier of services, s/he will be required to register if her/his aggregate turnover exceeds the prescribed threshold stated in the GST law.
Clarifications under Section 43A of the Model GST Law
There are special clauses in the MGL to avoid tax implications for certain purposes:
- The Tax Commissioner can permit the principal manufacturer who is a registered taxable person (hereafter ‘principal’) to move taxable goods, without paying tax, to a job worker for job work, and subsequently to another job worker if required. This is because it will be considered as a supply for the furtherance of business. The following should also be noted:
(a) After the completion of such job work, the principal can bring back the goods in question to his/her place of business, without paying tax, for the future purpose of supply in India, where tax will be paid. Alternately, the goods could be moved back to the place of business without payment of tax, for exporting, with or without being subject to tax consideration.
(b) The goods can be supplied directly from the place of business of the job worker on payment of tax within India, or can be exported with or without tax payment, provided that the said place is declared by the principal to be his/her additional place of business. There are, however, certain restrictions, such as if the job worker is registered under Section 19 of the MGL.
(c) The principal is accountable for the goods at all times and for the payment of taxes.
Assessing Input Tax Credit with Respect to the Inputs Sent for Job Work
Subject to such conditions and restrictions as may be prescribed, the following may be noted while assessing input tax credit for job work:
- The principal manufacturer is entitled to take credit of input tax on inputs (semi-processed goods or raw materials) sent to a job worker for job work if the amount of time taken for the completion of the job work and delivery of goods back to the principal is within 180 days. In case the inputs are not delivered from the principal’s place of business, the duration of 180 days will be calculated from the date of receipt of the inputs by the job worker.
- The principal is entitled to take credit of input tax on capital goods sent to a job worker if the said capital goods are received back after completion of job work within two years. In case the capital goods are directly sent to a job worker for processing or job work, the period of two years will be counted from the date of receipt of the capital goods by the job worker.
- In case the inputs or capital goods are not received back by the principal (to his/her place of business) within the time specified under the above sub-sections, respectively, s/he will have to pay the amount equivalent to the input tax credit being availed on the same (that is, either on the input or the capital goods, respectively).
For more information on how your business may be affected from the changes under the Model GST Law mentioned above, please get in contact with our tax professionals at firstname.lastname@example.org or visit us online at www.dezshira.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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