Impact of Goods and Services Tax on Job Work

Monisha Chaudhary

30 Mar, 2024

Introduction

One of the fundamentals of the manufacturing industry is job work. A third party is outsourced to some of the work by the manufacturer. This benefits the manufacturing industry in cost savings and increases their productivity as well. The business can focus on its main activity and can leave minor work to the third person. Job work is considered as a supply of goods or services under the GST system, and the tax is also liable for the same. Many different GST rates are prescribed for various job works, keeping in mind the nature of their work and the goods that are being worked on. Previously, job work was covered by the Central Excise Act of 1944 and the Service Tax Rules of 1994. Job work was subject to the excise duty under the Central Excise Act. Job work was subject to service taxes under the Service Tax Rules. With the implementation of GST, both acts were repealed, and job work is now subject to GST.

What is the meaning of job work?

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.”. A job worker is a person who can be registered or unregistered, who carries out specified tasks of another person who is registered, and the ownership of goods is under that registered person. When a job worker exceeds a specific imposed limit, the registration becomes mandatory. In a job work arrangement, there is an agreement between the manufacturer and the third party for performing a specific task on some materials. The task orders are given by the principal to the job workers, who have to do the necessary activities required, which can be assembling something, manufacturing, etc.

What do you mean by the principal manufacturer?

A person who provides semi-finished goods or raw materials to the job workers for processing the goods is known as a principal manufacturer.

GST on job work

The principal need not charge any GST while sending the goods to the job worker, provided the job worker returns the goods to the principal within the prescribed time after completing the job work. The GST law requires all businesses with an annual turnover of Rs. 20 lakhs or more to register under GST. This requirement applies to job workers as well. Many small job workers may not have an annual turnover of Rs. 20 lakhs and may not be able to register under GST, which can limit their business opportunities.

Input tax credit and job work

The goods that are sent to job workers can be claimed for credit/capital goods by the principal under section 19 (1) of the CGST Act of 2017. The input tax credit can be availed by the principal even when the goods are sent to the job worker directly and are not being received by the principal first, as per sections 19(2) and 19(5) of the CGST Act of 2017¹.

List of documents which is required

It is important to maintain accounts and records of the inputs and the capital goods of the principal. It is compulsory to send all the goods along with a challan. Input and capital goods are also required to issue a challan when they are sent to the job worker directly. The challan details are to be included in the GST ITC-04. The challan details should also be shown in Form GSTR -1. Following are the details that are to be included in the challan:

Form ITC-04

The principal is required to provide Form ITC-04, a three-month statement of records, with information on the goods that were supplied to, received from, or sent between job workers throughout the quarter. Form ITC-04 can additionally be viewed as a compilation of every delivery challan used to send goods to a job worker over the course of a quarter. If the principal’s annual aggregate turnover is less than Rs.5 crores, Form ITC 04 must be filed annually on or before April 25th. If the principal’s total annual revenue exceeds Rs. 5 crores, then the principal has to file Form ITC 04 on a half-yearly basis:

• October 25^th:  April – September
• April 25^th: October – March

What Is the Procedure under GST?

Whenever the goods are sent for the job work, it is mandatory to send the goods along with a challan. A timeframe is to be followed when the goods are being sent to the principal again after the job work:

• Semi-finished or finished goods, input by 1 year
• Capital goods are to be received in three years.

If the goods are not received within the aforementioned timeframe, then the job worker will be provided access to them by the principal worker. There are provisions for selling scrap and waste and paying taxes on the waste that is made during preliminary, intermediate, packaging, and other finishing procedures:

• To job worker if he is registered
• To a principal, the worker is not registered.

Conclusion

To summarize, the GST has had a significant impact on the concept of job work since its adoption. The GST rates for job work differ based on the type of work performed by the job workers and the goods on which it is performed.

Frequently Asked Questions

1. https://www.indiacode.nic.in/handle/123456789/15689?sam_handle=123456789/1362