Input Tax Credit on Job Work

Ashish M. Shaji

29 Dec, 2020

Input Tax Credit on Job Work sector is the significant sector in the Indian Economy. It includes outsourced activities which may or may not convert into manufacture. Job Work means processing of goods by the principal.

The introduction of GST has made special circumstances for removal of goods for job worker and receive the goods back after processing without payment of GST which will benefit both the principal and the job worker.

As per Section 2(68) of the CGST Act, Job work means any process or treatment undertaken by a person on goods belonging to another registered person. In such a case the ownership of the goods rests with the principal. The person doing the work is called the job worker.

Provisions for Input Tax Credit

• Section 19 of the CGST Act, 2017^[1] states that the person supplying the taxable goods to the job worker for further processing shall be entitled to take input tax credit paid on the inputs sent to the job work.
• The further proviso to the above section states that the principal can take the credit for the input taxes paid even if the goods are directly sent to the job worker for further processing.
• This enables the principal to avail the benefit of claiming input credit without bringing the goods in his premises.
• Time limit for Return of Processed Goods-
• For Capital goods: The capital goods sent to the job worker shall be returned to the principal within three years of being sent out.
• For Inputs: The inputs sent for further processing to the job worker shall be returned with 1 year of being sent out.

Criteria for Depicting the Point of Taxation with Examples

• Capital Goods sent to Job work after appointed day

1. Ram, the Principal manufacturer sent capital goods to the job worker Mr. Rahul for further processing on Sept 1, 2017.
2. There will be no GST applicable if Mr. Rahul sent the goods back after processing by Sept 1, 2020.

• Inputs or other goods sent to Job worker after Appointed day

1. X sends the glasses for packaging to Mr. Y for packing and labeling on Sept 1, 2017.
2. There will be no tax implication if Mr, Y sent back the glasses by Sept 1, 2018.

• Inputs or capital goods sent to job worker before appointed day and returned after the appointed day

1. P has sent to Job worker Q on Feb 9, 2017, for processing.
2. There will be no tax implication if the goods are returned by Dec 9, 2017 (i.e. within 6 months).
3. Thus the competent authority may further extend the period to 2 months with specific permission.

What is Form GST ITC 04?

It is a form that contains details regarding the inputs or capital goods sent and received back from such job worker. This form has to be filed by the registered manufacturer/principal sending inputs or capital goods on job every quarter.

It must include the details of challans in respect of:

• Goods dispatched to a job worker;
• Received from a job worker;
• Sent from one to another (job worker).

GST ITC-04 is a quarterly form that must be furnished on or before 25^th of the month succeeding the quarter. The details to be furnished in it is of two parts-

Goods sent to job worker and goods received from the job worker.

Conclusion

Thus a considerable amount of time is provided to the job worker for returning the goods to the principal under GST which helps to maintain transparency in claiming the input tax credit.

Read our article: Valuation rules under GST: An Overview