GST is set to be implemented in less than 4 months and there are still many doubts in the air. Input credit on job work is one of the nuances of the bill which is troubling manufacturers in the country. The tax implication under GST for a product sent for job work during different stages of manufacturing after the appointed day of GST rollout (July 1st) is also explained in our previous article. In this article, we are going to discuss the tax and input credit implications in case of goods sent for job work before and returned after the appointed date, in detail. Depending on the nature of goods in question (capital goods and other goods) there can be different tax implications when goods are sent for job work, prior to the appointed day.
There are three different scenarios that can take place-:
Capital goods which are sent to the job worker after appointed day have to be sent back within 3 years of sending the goods and are not liable to be taxed to job worker.
For example-: A sends some machine to job worker B for paint work on 1 August 2017. If B sends the machine back to A by 1 August 2020 then there will be no tax applicable to B and input tax credit will be available to A.
All the goods except capital goods sent to job worker after appointed day have to be returned to the manufacturer within a period of 1 year and are not liable to be taxed to job worker.
For example-: X sends plastic glasses to a job worker Y for the packaging of glasses on 15 July 2017. No tax shall be applicable to Y, if the goods are returned by 15 July 2018 and input tax credit will be available to X.
Input tax credit would be allowed on those inputs which are sent for job work but are returned within a period of six months from the appointed date. An extension of two months may be granted by the competent authority if there is sufficient cause. Job worker is not liable to deduct tax on goods which are returned by him within a period of six months or eight months from appointed date if the extension is granted by the competent authority.Considering, both the principal and job worker have declared their stock on the appointed date.
For example-: P had sent goods to a job worker Q on 10 January 2017. Q delivered the goods back to P on 25 November 2017. There will be no tax liability on Q as the goods were sent back within a period of 6 months from appointed date(July 1) and input tax credit will be available to P.
A considerable amount of time has been provided by the government to the job workers for returning goods to the principal holder. GST will help in maintaining transparency in the details of input credit on goods sent for job work.