Whenever the subject of GST comes up, we often end up discussing the impact of the new tax regime on various sectors of the Indian economy. In this blog, we are going to discuss the impact of GST on ‘Job work.’ This industry is an important sector in the Indian economy. It is a crucial part of India’s industrial sector making a significant contribution to GDP.
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 one who does the said job would be termed as ‘job-worker’.
Simply put, Job work means processing of goods supplied by the principal i.e. working upon the inputs or raw material supplied to a job-worker to complete a part or whole of a process and the person, who works on the inputs is called a job-worker. Job work includes outsourced activities that may or may not be resulting in Manufacture.
Various procedural concessions have been granted to the job-worker and the principal supplier, who sends goods for job-work. Since, job-workers are small persons, who are unable to comply with the discrete provisions of the law, therefore, the aim is to make principal responsible for meeting compliances on behalf of the job-worker on goods processed by him.
The GST Act lays down special provisions with respect to removal of goods for job-work and receiving back the goods after processing from the job-worker without the payment of GST. The benefit of these provisions is extended both to the principal and the job-worker.
First of all, you need to understand the concept of distinct persons. An establishment or person, who has either obtained or is required to obtain registration in a State and any of his other establishments in another State, shall be treated as distinct persons for the purposes of GST Law.
Hence, any transaction such as stock transfer, capital goods, etc. between two processing units or administration offices of the same job-worker will be treated as supply because the transaction is done between two distinct persons.
Job-work being a service, it is mandatory for the job-worker to obtain registration in case his aggregate turnover crosses the prescribed threshold. It is important to note that after completion of job-work, the supply of goods by a registered job-worker shall be treated as the supply of goods by the principal and the value of these goods shall not be included in the aggregate turnover of the registered job-worker.
A principal can send inputs/capital goods under intimation and subject to certain conditions without payment of tax to a job-worker and from there to another job-worker and after completion of job-work bring back such goods without payment of tax. The principal need not reverse the ITC availed on inputs or capital goods dispatched to job-worker.
Goods that are sent for job-work must be accompanied with a challan. And, inputs and/or capital goods sent to a job-worker are required to be returned to the principal within 1 year and 3 years respectively from the date of sending such goods to the job-worker. However, the provision of return of goods does not apply to moulds and dies, jigs and fixtures or tools supplied by the principal to job-worker.
Section 19 of the CGST Act, 2017 prescribes that the principal shall be entitled to take credit of input tax paid on inputs sent to the job-worker for the job-work. The principal can also take credit if the goods have been directly supplied to the job-worker without being brought to the premise of the principal.
Any input or partially processed inputs that are sent to a job-worker before the introduction of GST and if such goods are returned within 6 months from the appointed day (i.e. the day on which GST was implemented) (extendable for a maximum period of 2 months) no tax would be payable.If it is not returned within this time then the ITC availed will be required to be reversed.
Whatever waste is generated at the premises of the job-worker may be supplied directly by the registered job-worker from his place of business on payment of tax. And, if the job-worker is not registered then it may be cleared by the principal.
It is important to note that the responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.
Hence, more or less the tax treatment of job work under GST remains similar to the current regime. GST will now be levied on processing charges charged by the job-worker. Moreover, job-work will be treated only when Principal is registered.