Know everything about Job Work Transactions under GST Law
What do you mean by Job Work?
When we hear the words “job” and “work”, we mostly think of the same thing – chores, task, labour and so on. Job work simply means processing of goods i.e. processing of inputs and converting the same into a new product.
It is important to note that these goods do not belong to the job worker but to the principal (manufacturer). The job worker has no ownership on the goods. The principal entity provides the goods to the job worker. The job worker processes the same and returns the final goods to the principal.
Job work is simply an outsourcing activities that may or may not amount to manufacturing.
How is Job Work defined under GST?
According to CGST Act, 2017, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person.
Who are the parties to a job work contract?
There are 2 parties to a job work contract:-
Job Worker: The person who is treating or processing the goods belonging to other person is called ‘job worker’.
Principal: The person to whom the goods belong to is called ‘principal’.
- Job worker – Person who processes the goods which belong to the other Principal
- Principal – Person who provides goods to the job worker for processing (required to be a registered person)
Applicable Tax rate for Job work services?
The GST rate depends on the job work and therefore it can be bifurcated as Exempt under GST, 5% GST rate, 12% GST rate and 18% GST rate. This clearly states that the rate under Job work depends on the nature of job work. Few of them are listed below:
For Details about rate refer entry no 26 of of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017
Exempted under GST:
- Carrying out an intermediate production process as job work in relation to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce.
5% GST Rate:
- Printing of newspapers;
- Textile yarns (other than of man-made fibres) and textile fabrics
- Cut and polished diamonds; precious and semi-precious stones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)
- Printing of books (including Braille books), journals and periodicals
- Processing of hides, skins and leather falling under Chapter 41 in the First Schedule to the Customs Tariff Act, 1975 (51of 1975)12% GST Rate
18% GST Rate:
- Manufacturing services on physical inputs (goods) owned by others, other than mentioned under that of 5% GST rate
It is to be noted that,
A recent notification Circular No. 126/45/2019-GST, stated that entry at item (id) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28- 06-2017 inserted with effect from 01-10-2019 implemented to reduce rate of GST on all job work services, which earlier attracted 18 % rate, to 12%. Further it clarifies that the 12% GST rate for all services by way of job work, whereas the entry at item (iv) which covers “manufacturing services on physical inputs owned by others” would be with GST rate of 18%.
|Description||Applicable GST Rate|
|(id) Services by way of job work other than (i), (ia), (ib) and (ic)||12%|
|(iv) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii)||18%|
In view of the above, it may be seen that there is a clear demarcation between scope of the entries at item (id) and item (iv) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017. Entry at item (id) covers only job work services as defined in section 2 (68) of CGST Act, 2017, that is, services by way of treatment or processing undertaken by a person on goods belonging to another registered person. On the other hand, the entry at item (iv) specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under the CGST Act.
That means where the activity of job work is specifically excluded under entry 26- (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) of notification no. 11/2017-Central Tax (Rate) dated 28-06-2017
- Principal supplier registered under GST- 12% GSTto be charged by registered job worker
- Principal supplier unregistered under GST- 18% GST to be charged by registered job worker
What options is available to the Principal while sending goods to the Job Worker?
- Sending goods from his own premises
i. Principal can send inputs or capital goods without payment of tax to the Job Worker.
ii. After completion of job work, the job worker brings back such goods without payment of tax.
iii The principal is not required to reverse the ITC availed on inputs or capital goods dispatched to job worker
2. Sending goods directly to the job worker without first receiving the goods in his premises
i. Principal can send inputs or capital goods directly to the job worker without bringing them to his premises.
ii. Principal can avail the credit of tax paid on such inputs or capital goods
What is the time limit within which goods sent to the Job Worker are to be returned to the Principal?
|Nature of Goods||Time Limit|
|Capital Goods||3 years|
|Moulds, dies, fixtures, jigs, tools etc||No time limit|
Is Input Tax Credit (ITC) available on goods sent to Job Worker?
- Section 19 of the CGST Act, 2017 provides that the principal is entitled to take ITC paid on inputs sent to the job- worker for the job work.
- Principal can take the credit even when the goods have been directly supplied to the job worker without bringing into the premises of the principal.
- The principal need not wait till the inputs are first brought to his place of business
What will happen if the goods sent to the job worker are not returned within the specified time?
If the goods sent to the job worker are not returned within the specified time (1 yr / 3 yrs), then the ITC availed by the Principal will be recovered
Is Reverse Charge Mechanism (RCM) applicable for Job Work Transactions?
Mostly, the supplier of goods or services is required to pay GST. RCM means that the liability to pay tax falls on the recipient of supply of goods or services, instead of the supplier.
Section 9(4) of CGST Act, 2017 provides that the tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis.
In simple words, if the job worker is not a registered person, then on the amount charged by him towards job work charges, principal needs to pay tax under RCM.
Is it mandatory for a Job Worker to be registered?
|Situation||Is registration mandatory?|
|1. Job worker making inter-state taxable supply||Yes|
|2. Job worker making intra-state taxable supply|
|i. aggregate turnover exceeds the prescribed threshold limit of Rs 20 lakhs (Rs 10 lakhs for special category states)||Yes|
|ii. aggregate turnover exceeds the prescribed threshold limit of Rs 20 lakhs (Rs 10 lakhs for special category states)||No (job worker may take voluntary registration)|
What options are available to the Job Worker after completion of his work?
After the job worker completes his process he may:-
- Dispatch the goods to any of the place of business of the principal without payment of tax
- Another job worker for further processing
- Remove the goods on payment of tax within India or without payment of tax for export outside India on fulfillment of conditions
What procedures are required to be followed by the Principal while sending goods to Job Worker?
- In order to send inputs or semi-finished goods, without payment of duty or without reversal of input tax credit to a job worker, the Principal has to prepare a ‘Delivery Challan’ in the prescribed format.
- Details of the challans must be reflected in Form GSTR-1
- Details of challans must also be filed through Form GST ITC – 04 which must be submitted on quarterly basis by 25th day of the month succeeding the quarter.
- Responsibility for keeping proper accounts for the inputs or capital goods shall lie with the Principal.
What transitional provisions are applicable to Job Worker?
- Inputs which are sent to a job worker prior to introduction of GST under the provisions of existing law [Central Excise] and if such goods are returned within 6 months from the appointed day i.e. 1st July, 2017 no tax would be payable.
- If such goods are not returned within prescribed time, ITC availed on such goods will be liable to be recovered.
- If manufactured goods are removed, prior to the appointed day, without payment of duty for testing or any other process which does not amount to manufacture, and such goods are returned within 6 months from the appointed day, then no tax will be payable.
- For the purpose of these provisions during the transitional period, the manufacturer and the job worker are required to declare the details of such goods sent/received for job work in prescribed format GST TRAN-1, within 90 days of the introduction of GST