Contributed by CA. Puneet Oberoi.
Meaning & Concept of Job Work
JOB work is the only exception to the general rule of the GST concept that the credit moves with the goods. Job work is defined under 2(61) of the CGST Act, as:-
“(61) job work means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression job worker shall be construed accordingly;”
To understand it needs to be appreciated that few ingredients are required for any activity to be treated as Job Work:-
(i) There has to be a treatment or process on goods,
(ii) Such treatment or process should be done by any person (Registered or Unregistered)
(iii) Such goods should belong to a Registered Taxable Person
This means that if the last condition is not satisfied i.e. if the Job work is not carried on the goods of a registered taxable person i.e. unregistered person, it cannot be termed as “Job Work” and such activity will get covered by normal supply provisions.
ITC ON JOB WORK
Special provisions for taking Input Tax Credit on inputs sent for job work have been provided under section 20 of the revised model GST law.
A registered taxable person shall be allowed input tax credit on the inputs sent to the job worker. Such inputs shall be allowed subject to such conditions and restrictions as may be prescribed.
Sub Clause (b) of sub-section 2 of section 16 stipulates a condition that in generality, input tax credit shall be allowed only when a person has actually received goods/ services. However, an exception to this general rule has been prescribed for a registered taxable person where he can send the material directly to the job worker from his supplier without first bringing it to the place of business of principal.
After completion of job work, the principal has two options:-
(1) Bring back the goods after necessary treatment or process.
(2) Follow the process of section 55 and clear the goods further:-
a. In domestic area on payment of GST
b. For exports, on payment of IGST or without IGST under Bond.
Within a period of one year of sending the inputs or if sent directly to him, of the date of receipt of inputs with him, and if not done as above within this period, it will be treated as outward supply of the principal on the date when such inputs were sent out to the job worker.
Goods were sent by Mr. A to the job worker on 4th July, 2017 for job work. However, neither he brought such goods back or cleared it further on payment of GST or without payment for exports by 3rd July, 2018. In this case, it will be treated as outward supply as on 4th July, 2017 and will be reflected in the return for the month of July, 2018 to be filed in the month of August, 2018 with interest liability for one year.
In the case of Capital Goods, input tax credit is allowed when sent out for job work either through him or directly to the job worker. In case these capital goods are not brought back within a period of three years from the date of sending the goods, or in case such capital goods sent directly to the job worker, from the date of receipt of such capital goods, it shall be treated as outward supply of the capital goods and similar interest shall be payable as explained in example above.
The time period restrictions of one year or three years is not applicable in the case of moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.
Special Provisions for removal of Goods for certain purpose- Section 55
A registered taxable person may under intimation and subject to such conditions as may be prescribed, send any inputs and /or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise, and shall-
(a) Bring back inputs and /or capital goods with or without job work within a period of one / three year respectively of their being sent out, without payment of tax
(b) Make further supply of such inputs and / or capital goods with or without job work within one / three year on payment of tax within India and with or without payment of IGST for exports as the case may be.
Above facility of supply of inputs/ capital goods with or without job work without payment of tax is allowed only if the principal declares the place of business of the unregistered job worker as his additional place of business through amendment of his registration certificate. This condition of registration is not applicable thus in the case of registered job worker and in case of such goods as may be notified by the commissioner.
It is pertinent to note that in the revised model GST law, there has been a paradigm shift in the intent of legislature. Whereas in the earlier MGL it was require to seek permission, however, in the revised MGL, it has been replaced by intimation. Thus, a person need to just inform the department (Will hopefully be prescribed through Portal only as per rules to be prescribed.) and start his process of getting the job work done.
The principal shall be responsible for the accountability of the inputs and/ or capital goods. Also, in case the inputs/ capital goods are not received back or not further cleared within India on payment or for export with or without payment of tax within a period of one/ three years respectively, it shall be treated as outward supply and tax shall be payable when the goods were sent out.
The scrap generated on job work may be cleared by the registered job worker directly or by the principal in case the job worker is unregistered. Please note the use of word “may” here which means that this is option. The job worker may also return such scrap generated back to the principal also.
Transitional Provisions regarding Job Work
Sections 175, 176 and 177 deals with the job work relating to inputs, semi-finished goods and finished goods respectively. The provisions are similar and can be discussed all together. These provisions allow that goods sent for job-work before the appointed day can be brought back within a period of six months. This period of six months on sufficient cause shown may be extended maximum by another two months. In case these inputs are not returned within a period of such six/ eight months, the input tax credit availed under the earlier law shall be liable to be recovered under the provisions of section 184 as arrears of tax under GST Law. This benefit is available only if both the person despatching the goods and job worker declare the details of such goods held in stock on behalf of principal as on the appointed day.
A question that remains unanswered is that what if the job worker is not required to obtain registration number? How will he declare the details of the stock as on the appointed day in this case? May be some solution is brought out through the rules.
Important differences in sections 175, 176 and 177 are:-
(a) Section 175 does not provide the facility of onwards clearance of goods on payment of tax in India or for exports with or without payment of tax whereas the same is available in both sections viz. 176 for semi-finished and finished goods u/s 177.
(b) The requirement of declaring the goods both by the principal and job worker is missing in the case of section 177 relating to Finished Goods.
Another striking point is that transitional provisions elaborately provide for inputs, semi-finished goods and finished goods under three different sections. However, strangely no transitional provision has been provided for job work on capital goods whereas under the normal provisions of section 20, the legislature assumes that capital goods may need a period of three years for it to be processed and return. This appears to be omission and should be rectified in ensuing model law/ act.
Job work provisions are one of the widely used provisions under the existing law and appear to be point of importance under GST law as well. However, some grey areas need to be removed for smooth implementation.
Views presented in this article are personal view of the author. Information presented in this article is intended for information purpose only and does not constitute any legal opinion or advice. Readers and Users are requested to seek formal legal advice prior to acting upon any of the information provided herein.