Impact of Goods and Services Tax on Job Work

In this article, we are going to discuss the tax implications in case of goods sent for job work before and returned after the appointed date.

Latest Updates

24th Sept 2021
With effect from 1st October 2021, the frequency of filing the ITC-04 form has been revised through the Central Tax notification number 35/2021 dated 24th September 2021, as follows-
(1) Those with AATO more than Rs.5 crore – Half-yearly from April-September- due on 25th October and October-March due on 25th April.
(2) Those with AATO up to Rs.5 crore – Yearly from FY 2021-22 due on 25th April.

1st May 2021
ITC-04 for the quarter January-March 2021 is extended from 25th April 2021 up to 31st May 2021.

What is job work?

Job work means processing or working on raw materials or semi-finished goods supplied by the principal manufacturer to the job worker. This is to complete a part or whole of the process which results in the manufacture or finishing of an article or any other essential operation. For example, big shoe manufacturers (principals) send out the half-made shoes (upper part) to smaller manufacturers (job workers) to fit in the soles.

The job workers send back the shoes to the principal manufacturer As per GST Act, job work means any treatment or process undertaken by a person on goods belonging to another registered person. The person doing the job work is called job worker. Note: Value of goods sent by the principal will not be included in the aggregate turnover of the registered job worker

ITC on goods sent for job work

The principal manufacturer will be allowed to take credit of tax paid on the purchase of goods sent on job work. However, there are certain conditions.

A. Goods can be sent to job worker:

1. From principal’s place of business
2. Directly from the place of supply of the supplier of such goods

ITC will be allowed in both the cases.

B. Effective date for goods sent depends on place of business:

1. Sent from principal’s place of business- Date of goods sent out
2. Send directly from the place of supply of the supplier of such goods- Date of receipt by job worker

Effective date is important because it will help to determine the point of taxation if the goods are not returned back within the specified time (see point C below)

C. The goods sent must be received back by the principal manufacture within the following period:

1. Capital Goods- 3 years
2. Input Goods- 1 year

D. In case goods are not received back within the period mentioned above, such goods will be treated as supply from the effective date and tax will be payable by the prinicpal.

For more details, please refer our article on Input Credit on Job Work and ITC-04.

Accompanying documents

Accounts & records

The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.

Challan

• All goods sent for job work must be accompanied by a challan.
• The challan will be issued by the principal.
• It will be issued even for the inputs or capital goods sent directly to the job-worker.
• The details of challans must be shown in FORM GSTR-1.
• Details of challans must also be filed through Form GST ITC – 04.

The challan issued must include the following particulars:

1. Date and number of the delivery challan
2. Name, address and GSTIN of the consigner and consignee
3. HSN code, description and quantity of goods
4. Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately
5. Place of supply and signature

Form ITC-04

FORM GST ITC-04 must be submitted by the principal every quarter. He must include the details of challans in respect of the following-

• Goods dispatched to a job worker or
• Received from a job worker or
• Sent from one job worker to another

  It must be furnished on or before 25^th day of the month succeeding the quarter. For example, for Oct-Dec quarter, the due date is 25^th Jan. For more information on ITC-04  please refer our article.

Transitional provisions

This applies for items removed for job work before GST and returned on or after GST implementation. No tax will be payable if the following conditions are satisfied:

• The goods are returned to the factory within 6 months from 1^st July (i.e. by 31^st Dec 2017) (extendable for a maximum period of 2 months).
• Goods held by job worker is declared in Form TRAN-1
• The principal manufacturer can sell off the items under job work only after paying required taxes (Excise & VAT if before GST. If he sells after 1^st July 2017, then GST applies). This rule does not apply to goods exported out of India within 6 months from the appointed date (extendable by not more than 2 months).

If the goods are not returned within the time period then ITC will be recovered from the principal manufacturer.

FORM GST TRAN-1

Both the job worker and the principal manufacturer must submit FORM GST TRAN-1 and mention the details of stock held by job worker for principal/ with job worker/by job Due date is 30^th November 2017 They must specify the stock of the inputs, semi-finished goods or finished goods held by them on 1^st July 2017. Please refer our guide on TRAN-1 for more details.

GST Rates on Job work

Job Work on	GST Rate
Agriculture, forestry, fishing, animal husbandry	0%
Intermediary services related to cultivation and animal rearing	0%
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	5%

 For more information on Input Tax Credit on Job Work under GST and other input tax credit provisions please visit our blog. Be GST ready through ClearTax GST Software, an easy user-friendly versatile software which will help you to be GST compliant.