In normal course of business, when a manufacturing unit is not able to meet it is supply on account of machine line balancing or specific operation being not capable of being performed in the factory or unexpected demand for the product in the market, normally outsources the same to external vendor for getting the processing completed at his premises. This process is called sub-contracting or job work in the tax parlance.
Sub-Section 62 of Section 2 defines Job work as “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;
Goods and Service Tax is levied on the supply of goods and services and transfer of material from factory to the subcontractor’s premises amounts to supply. Till the Model GST Law was made available to the public domain there was a debate going on that is Job work or subcontracting is allowed under GST and to make the industry happy, the Model GST Law has provision for the Job-work under Section 43 A thereby providing lot of relief to the trade and industry. Supplies to job work are specifically excluded as supply in Schedule 1 of the Model GST Law. (for details on supply refer to the blog Demystifying Time of Supply of Goods under Model Law)
Though Job-work provisions are given in the section 43A, there is some change to the existing process of job-work under the Central Excise. As per the Model GST Law, the tax payer I,e the principal is required to obtain a special order from the GST Commissioner for permitting him to send the goods for job work under specific conditions for supply of material without payment of taxes for further processing by the job worker.
The modalities of the form to be used and the process of receiving and sending is not clear now and we need to wait for the relevant notifications once the GST Act is passed.
The principal can send the goods to the job worker from his registered premises and then after processing of the goods at the job workers place, the principal can do any of the following
- Request for return of goods to his original premises
- Or any of his registered premises
- Send the goods from the job workers place to further processing to another job worker
- Supply the goods directly from the job worker’s premises on payment of taxes within in India
- Export the goods directly from the job worker’s premises without payment of tax
In case if the goods are to be exported or sold in the domestic market, the job worker has to be registered as an additional place of business of the principal, which is not there in the existing provisions of the Central Excise. The same is not required if the job worker is already registered under GST as per provisions of Section 19. (Refer to blog on Demystifying Registration under Model GST Law)
The goods to be processed can be sent directly from the principals registered premises or ask his supplier to ship the goods directly to the job worker’s premises.
Section 43 A of the Model GST Law does not specify the days under which the goods have to be returned back to the principal’s place but section 150 and 151 under transitional provisions specifies the same as 6 months and Section 16A specifies if the goods are brought back within 180 days eligible for input tax credit. A clarification is required on the period as 180 days or 6 months, if this Is not clarified then there will be two-yard sticks on return of goods from the job worker
- For claiming input tax credit within 180 days
- For payment of duties if the goods are not brought back in 6 months.
Section 150 of the Model GST Law, describes the process for the inputs removed for job work and returned on or after the appointed day. The inputs sent on job work prior the appointed day (the date on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after a further extension of 2 months, taxes have to be paid under GST. The principal or the manufacturer has to pay the taxes.
The above process is applicable only if the principal or manufacturer maintains a proper record of the inputs lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.
Section 150 of the Model GST Law, describes the process for the semi-finished goods removed for job work and returned on or after the appointed day. The semi-finished goods sent on job work prior the appointed day (day on which the GST is rolled out) within 6 months, then no taxes are to be paid. In case if the same are returned after 6 months, the jurisdictional commissioner can grant an additional period of 2 months if he is satisfied with the reasons for the delay. In case if such permission is not granted or being returned after further extension of 2 months, taxes have to be paid under GST. The principal or the manufacturer has to pay the taxes.
The manufacturer or principal can ship the goods directly from the job worker’s premises to any other registered tax payer on payment of duties or export the same without payment of duties.
The above process is applicable only if the principal or manufacturer maintains a proper record of the semi-finished goods lying in the premises of the job worker as on the appointed date in the format prescribed by the tax authorities.
We need to have further information on the job work under GST
- The format of the letter to be sent the commissioner for requesting permission for job work.
- The format of the document under which the goods can be shipped without payment of taxes.
- The format of the document under which the goods can be sent directly from the supplier to job worker.
- Clarity on the time period under which the goods have to be returned back from job worker – 180 days or 6 months.
- The format for declaring the goods laying at the job worker as on appointed date.
- Applicability of Section 61 of the Model GST Law for the moment of goods from tax payers location to job workers location.
There are some changes that need to be adopted by the tax payers going forward under GST for job work.
- If the job worker is not a registered taxable person, then his address is also to be included in the place of business of the taxpayer in his registration application. This needs to be updated from time to time as the goods can be sent to different job workers based on the business requirements.
- Reverse charge will be applicable on the charges paid to the job worker if the job worker is not a registered tax payer.
- In case of goods not returned within 180 days from the job worker, before payment of duty proper care has to be taken to identify if the goods sent are before the rollout of GST, if yes, then 180 days should be considered from the rollout date and not from the actual date on which the goods are sent to the job worker.
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