GST Impact on Job Work – All You Should Know

The job work industry constitutes a major sector in the Indian economy. It is like an extended arm of India’s commercial sector contributing considerably to the nation’s GDP. Job-work basically consists of outsourced activities which may also or might not result in the manufacturing process. A huge variety of industries locate it hard to finish the entire process of production or production interest on their own. As such, the industry relies on outside assistance for many things, like, testing, various intermediate processes on raw fabric, etc., for completing/intermediating the manufacturing process. Here we are going to discuss how GST(Goods and Services Tax) Impact on Job Work – all you should know

At various times, the job worker may be more efficient, both in regard to the quality and price compared to the primary manufacturer due to the pursuance of core abilities and economies of scale. Most of the large-scale manufacturers, in fact, make very good use of this concept or exercise and assign non-core or even standard processes to multiple suppliers which enables them to reduce their production costs.

GST(Goods and Services Tax) Impact on Job Work

According to the Goods and Services Tax (GST) Act, job work is defined as any treatment or process that is undertaken by a person on goods which belongs to another registered person. The person doing the job work is known as the job worker.

In simple terms, a job work under GST refers to the processing or working on the raw materials or semi-completed goods that are supplied by the principal manufacturer to the job worker. This is to complete a component or the entire process which results in the manufacture or finishing of an article or any other important operation. For instance, there is a large-scale shoe manufacturer (or principal) that sends out its half-made shoes (upper part) to another small-scale manufacturer (or job worker) in order to fit the soles in each shoe that has been supplied. Now, after finishing the work, the job worker, who is the small-scale manufacturer here, then sends back the completed footwear to the primary manufacturer or the principal.

It is important to note here that the value of goods sent by the principal (or primary manufacturer) will not be included in the aggregate turnover of the job worker registered under GST.

Input Tax Credit (ITC) on Goods Sent for Job Work

The principal or primary manufacturer shall be allowed to take credit of tax paid on the purchase of goods despatched on job work.

However, there are certain conditions that must be taken into consideration. These are explained as follows:

1. Goods can be sent to job worker:

(i) From the place of principal business

(ii) Directly from the location of supply of the (supplier) of such goods

ITC shall be allowed in both the cases.

2. Effective date for goods sent depends on the location of a business:

(i) Sent from the location of principal business – date of goods sent out

(ii) Sent directly from the place of supply of the (supplier) of such goods – date of receipt by job worker

The effective date is essential because it will help in determining the point of taxation if the goods are not returned within the specified time (refer to the following section C).

3. The goods despatched ought to be obtained back by the principal manufacturer within the following period:

(i) 3 years in case of Capital Goods

(ii) 1 year in case of Input Goods

In case goods are not obtained back within the period stated above, then such goods shall be treated as supply from the effective date and tax shall be payable by the principal (primary manufacturer).

Documents Required to be Furnished by Principal

The principal (or primary manufacturer) must produce/submit relevant documents online on the GST common portal with regard to claiming ITC on the supply of goods to the job worker.

Mentioned below are certain important documents that are required by the principal business in view of claiming ITC on goods supplied.

Accounts and Records

The obligation for keeping appropriate accounts for the inputs or capital items shall lie with the principal.

Challan

This includes the following:

  • All items despatched for job work should be accompanied by a challan.
  • The challan is to be issued by the principal.
  • It will be issued even for the inputs or capital items despatched immediately to the job-worker.
  • The information of challan(s) need to be proven in FORM GSTR-1.
  • The details of challan(s) have to be additionally filed through FORM GST ITC-04.

The challan that is issued should encompass the following particulars:

  • Date and the unique number of the delivery challan.
  • Name, address, and unique GSTIN (Goods and Services Tax Identification Number) of both the consigner and consignee.
  • HSN code, description and quantity of goods/items.
  • Separate taxable value, tax rate, and tax amount of CGST, SGST, IGST, and UTGST, respectively.
  • Place of supply and signature.

Form ITC-04 under GST Act

The FORM GST ITC-04 is required to be submitted online on the GST common portal each quarter by the principal (or primary manufacturer). Also, the principal is required to provide the information on challans with respect to either of the following:

  • Goods dispatched to a job worker, or
  • Goods received from a job worker, or
  • Goods sent from one job worker to another

The details should be furnished on or before the 25th day of the month succeeding the quarter. For instance, for a period of the October-December quarter, the due date is 25th January.

Transitional Provisions under GST

The transitional provisions are applicable toward goods/items that were eliminated for job work before introducing GST and returned on or after the implementation of GST.

Thus, no tax shall be payable if the situations listed below are satisfied:

  • Goods/items are returned to the factory within 6 months from 1st July (i.e., by 31st December 2017) (extendable for a duration of not more than 2 months).
  • Goods/items that are held by the job worker is declared in Form TRAN-1.
  • The principal (or primary manufacturer) can sell off the goods/items under job work only after paying the required taxes (such as Excise and VAT, if before GST was introduced. However, if he/she sells the goods/items after 1st July 2017, then GST will be applicable). This rule is not applicable to goods/items that are exported from India within 6 months from the appointed date (the period can be extendable, though not more than 2 months).

In case the goods/items are not returned within the said period of time, then ITC can be recovered from the principal, i.e., the primary manufacturer.

When to Furnish FORM GST TRAN-1

It is mandated that Form GST TRAN-1 must be furnished online on the GST common portal by both the job worker and the primary manufacturer (principal), as well as to include the information of stock held by job worker for principal/with job worker by job work.

The due date for furnishing the details via Form GST TRAN-1 online on the GST common portal must be done on or before 30th November.

Both the job worker and principal manufacturer must specify the stock of the inputs, semi-finished goods/items, or completed goods/items held by them on or before 1st July.

GST Rates on Job Work

Given below are GST rates that are levied on job work, as per the GST regulation.

GST at 0% is levied on:

Agriculture, forestry, fishing, animal husbandry

GST at 0% is levied on:

Intermediary services related to cultivation and animal rearing

GST at 5% is levied on:

(a) Printing of newspapers

(b) Textile and textile products

(c) Jewellery

(d) Printing of books (including Braille books), journals and periodicals

(e) Processing of hides, skins and leather



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