Jobwork Procedures Under GST

Jobwork means the activity of processing on the goods belonging to another person. For example, big shoe manufacturers (principals) send out the half-made shoes (upper part) to smaller manufacturers (job workers) to fit in the soles. In the context of GST, Job Work refers to any process that is undertaken by a job worker on behalf of a principal, who remains the owner of the goods throughout the job work process. In this article we are going to discuss in detail about the job work procedures and the impact of GST on such procedures.

Meaning of Job work under GST: 
The definition of job work is given under section 2(68) of CGST Act 2017. Which states that the 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

Hence, for treating anything as job work there must be;
(i) Two persons (one principal and another job worker)
(ii) The goods should belong to another registered person (principal)
(iii) Treatment or process to be undertaken on the said goods shall be by the job worker, whether registered or not.

The definition of job work also states that the person to whom the goods are belonging i.e. principal should be a registered person. Thus, if some treatment or process is undertaken by a job worker on goods belonging to an unregistered person, it will not be considered as job work as per the above definition. Therefore, in a case where the principal is not a registered person, the activity may not qualify as job work.

Activity of Job Work is supply of goods or supply of service:
Schedule II of CGST Act 2017 contains the list of activities or transactions which shall be treated as supply of goods or supply of services. As per para 3 of Schedule II of CGST Act 2017 any treatment or process which is applied to another person's goods is a supply of services. Accordingly the activity doing the job work is a supply of service. Now let’s move towards the procedure for sending the goods to the job worker.

The procedure for sending the goods to the job worker under GST:
The provisions related to job work are contained in section 143 of CGST Act 2017. Sub section 1 of section 143 of CGST Act states that;

“A registered person (hereafter in this section referred to as the "principal") may under intimation and subject to such conditions as may be prescribed, send any inputs 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, and shall,

a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax;

b)    supply such input, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be”

From the above provisions of section 143(1) it is clear that no tax would be leviable while sending the goods (whether inputs or capital goods) by the principal from their place to the place of job worker, subject to the condition that such inputs after job work  should be received back from the job worker’s premises within one year from the date of sending such goods by the principal and similarly the capital goods should be received back within three years. However such time limits would not applicable on moulds and dies, jigs and fixtures, or tools.

Consequences if goods are not received within the prescribed time period:
Sub section 3 & 4 of section 143 of CGST Act 2017 contains the provisions when such inputs/capital goods are not received by the principal within one/ three year(s). As per section 143(3), if the inputs sent for job work are not received back by the principal after completion of job work within one year, in that case it shall be deemed that such inputs are supplied by the principal to the job-worker on the day when the said inputs were sent out.
Similarly, as per section 143(4), if the capital goods sent for job work are not received back by the principal after completion of job work within three year, in that case it shall be deemed that such capital goods are supplied by the principal to the job-worker on the day when the said capital goods were sent out. However such provisions would not be applicable on moulds and dies, jigs and fixtures, or tools.

Supply of goods from the job worker's premises by the Principal:
Section 143(1)(b) of CGST  Act 2017, allows the principal to supply inputs or capital goods, after completion of job work from the place of business of a job worker on payment of tax. Accordingly, the principal can supply the goods to their customers from the place of business of job worker. However, as per the proviso to section 143(1)(b) 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.

Hence from the above proviso, it clear that if the job worker is unregistered and the principal wants to sold the goods from the job worker’s premises then such principal has to show the address of said job worker as an additional place of business. But  if the job worker is already registered under GST, then the principal can sold the goods from the said place of business of job worker. Let’s discuss the above provisions with the help of an example:

Mr.A is a registered in Delhi has sent goods for job work to Mr.B.  Now, Mr.A wants to sell such goods from Mr. B’s place of business to the customer. Whether Mr.A  can supply such goods from job workers premises;
(i) If Mr. B is registered under GST.
(ii) If Mr.B (job worker) is not registered under GST .

(i) In this case, Mr. A the owner of goods i.e., Principal is registered in Delhi and the job worker Mr. B is registered in Haryana.  As the job worker (Mr.B) is already registered under GST, hence the restriction of declaring the premises of job worker as an additional place of business would not be applicable in the given case and the goods can be directly supplied from the job worker's premises to the customer.

(ii) If Mr. B is not registered and MR. A wants to directly supply such goods from Mr.B’s premises. Hence Mr. A (principal) has to declare the address of Mr. B as an additional place of business in his registration certificate.

Treatment of scrap/waste generated during Job work:
If any scrap is generated during the job work process then the question arises what should be the treatment of such scrap for the purpose of GST. In this regard sub-section 5 of section 143 of CGST Act 2017 states that any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered.

Accordingly, if any scrap is generated during the jobwork process and the job worker is registered under GST, then such scrap can be sold by the job worker from his place of business. However, if such job worker is not registered under GST then the such scrap can be sold by the principal.

Documents for sending the goods to Job worker:
As per Rule 45(1) of CGST Rules 2017, 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. Accordingly, for movement of goods from the place of principal to the place of job worker, a delivery challan should be made.
Similarly, the job worker will issue a delivery challan for sending back the goods after completion of jobwork.

The details of challans in respect of goods dispatched to a job worker or received from a job worker during a specified period shall be included in FORM GST ITC-04. Such ITC-04 should be furnished on or before the twenty-fifth day of the month succeeding the six months or financial year as the case may be. The said return (ITC-04) is to be filed on six months basis by the principal whose aggregate turnover during the immediately preceding financial year exceeds five crore rupees. However, if the turnover of the principal does not exceed five crores then such return is to be filed on yearly basis.

Availability of input tax credit to the principal and job worker:
Some times the job worker directly receives the goods on behalf of the principal by the supplier of such principal. In such situation the doubts arises that whether the principal would be eligible to claim ITC in respect of said goods which were directly dispatched by their supplier to the job worker.  As per the provisions contained in clause (b) of sub-section (2) of section 16 of the CGST Act, the input tax credit would be available to the recipient  when the goods are received but in case since the goods are directly received by the job worker. The CBIC issued a Circular No.38/12/2018. In para -10 of said circular it is clarified that the input tax credit would be available to the principal, irrespective of the fact whether the inputs or capital goods are received by the principal and then sent to the job worker for processing, etc. or whether they are directly received at the job worker’s place of business/premises, without being brought to the premises of the principal. It is also clarified that the job worker is also eligible to avail ITC on inputs, etc. used by him in supplying the job work services if he is registered.

E-way bill requirement for Jobwork:
Rule 138 (1) of CGST Rules 2017 states that E-way bills is required  to be generated by every registered person who causes movement of goods of consignment value exceeding fifty thousand rupees, in relation to a supply; or for reasons other than supply. Hence if the value of consignment is more than 50,000/- the e-way bill is required to be generated.
However as per third proviso to Rule 138 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. Accordingly, the e-way bill is compulsory required to be generated if the goods are sent out for jobwork purpose to the job worker located in different state, even if the amount of the consignment is less than Rs. 50,000/-

After detailed discussion of job work procedures from each and every aspects, we can conclude this article.

Conclusion: For sending the goods for jobwork purpose the principal should issue a delivery challan to the job worker and such goods must returned back with in one year/three years, except moulds, dies, tools, fixtures. If job worker is located in different state then e-way is mandatory irrespective of the amount of consignment. The principal would be eligible for ITC even if the goods are directly dispatched to the job worker by the supplier of principal. Similarly, the principal can also directly sell the goods from the registered job worker’s premises and if job worker are not registered then the principal should disclose the address of unregistered job worker in his registration certificate as an additional place of business.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.