GST & Job Work: A Brief Analysis

A manufacturer may send out his goods to a job worker for initial process, intermediate process, assembly, packing or any other completion process and later supply such goods to its customers or use in its own other manufacturing processes. The goods sent for job work maybe raw material, component parts, semi-finished goods etc. In this article, we will look procedures & compliances related to the job work under GST Law.

GST Definition for Job Work

Section 2(68) of the CGST Act, 2017 defines job-work as ‘any treatment or process undertaken by a person on goods belonging to another registered person’. The one who does the said job would be termed as ‘job worker’.

GST Registration for Job Worker

Job workers providing taxable supply of more than Rs.20 lakhs (Rs. 10 lakhs in some states) in a year are required to obtain GST Registration and file GST returns. Since, GST registration can also be obtained voluntarily, some manufacturers outsourcing parts of the manufacturing process would mandate the job worker to obtain GST registration for receiving contracts.

Input Tax Credit  for Principal

Under GST, the principal is allowed to take Input Tax Credit on goods supplied to the job worker. Also, the principal can take input tax credit on inputs / capital goods directly supplied to the job worker even without the goods being brought into the premise of the principal.

Certain Procedure & compliance under GST

1 Goods sent out for job work must be accompanied with a Challan.

2 Goods sent must be either received back by the principal or supplied directly from the job workers place within the period mentioned below:

a. Input, Semi-finished or finished goods – 1 year

b. Capital goods - 3 years

3 In a case where the goods send have not received back within the period mentioned above, such goods will be treated as supplied to job worker by the principal on the Challan date and Tax & Interest liability will arise.

4 Waste & Scrap generated during the initial process, intermediate process, assembly, packaging or any other completion process may be sold on payment of tax by:

By Job work- if he is a registered Person.

By Principal – if job worker is not registered.

GST Rate for Job Worker

NO GST: GST is not applicable for carrying out notified activities related to farm, agriculture and rearing of animals.

5% GST is applicable for the following types of job work:

• 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
• Printing of books (including Braille books), journals and periodicals;
• Processing of hides, skins and leather falling under Chapter 41 of HSN

In case the job work GST rate is not provided explicitly by the GST department, then the default GST rate of 18% would be applicable.

Conclusion

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.