The definition of supply under Central GST Act includes “transfer” of goods, therefore sending goods for Job Work will be covered under the definition of supply and will be liable to GST. However Section 143 of the Goods and Service Tax Act lays down certain procedure to transfer goods without payment of tax.
The requirements are 3 fold :
Section 143(1) requires that a Principal may send goods on Job Work basis by proper intimation to the concerned authority. The procedures are yet to be notified
Section 143(1)(a) requires that inputs and capital goods, which are send to Job Worker, has to be brought back within prescribed time, if not it will be charged to GST. Explanation to Section 143(5) states that input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker. We should understand that the provision not only apply to input originally transferred it equally applied to all intermediate products/bye-products, waste and scrap generated in the course of Job Work. It also implies that the requirement of bringing back inputs and capital goods back to the premises of the Principal also applies to such intermediate products/bye-products also
The inputs supplied should be received back by the principal within 1 year from date of supply, if not it will be treated as supply of goods to Job Worker and output tax has to be paid. The date of supply will be deemed to be the date when the inputs where actually send to the Job Worker. Also if inputs are directly send to the Job Worker, then date of supply will be date of receipt by the Job Worker because in such case the date of actually sending the goods by third party cannot be accurately identified.
Similar provisions are included in the case of capital goods send to Job Worker. Goods of capital nature belonging to the principal maybe send to the Job Worker for manufacturing/processing of inputs, semi-finished.
Capital goods send to the Job Worker should be received back within 3 years from date of supply or else it will be treated as supply to the Job Worker similar to supply of inputs. The date of supply will be deemed to be the date of sending inputs to the Job Worker. Also if inputs are directly to the Job Worker without bringing it first to the place of the Principal, the date of supply will be date of receipt by the Job Worker.
However many manufacturers will have their dies moulds and jigs with their Job Workers to manufacture according to specification. The treatment of such transfers as deemed “supply” when inputs are not received back within 1 year or 3 years as the case may be will not apply to such capital goods. Even tools sent out to Job Worker is excluded for this time limit.
Secondly section 143(1)(b) with respect to Job Work states that if finished goods have to be cleared/sold from the premises of the Job Worker directly without bringing it back to the Principal then the place of business of Job Worker should be declared as the Principal’s additional place of business. Such supply of finished goods should also take place within a period of one year similar to provisions applicable to inputs/semi-finished goods. Otherwise it will be deemed to have been supplied by the principal to the Job Worker on the date of sending the inputs.
Section 19 of the Central GST Act deals with the provisions of Input tax credit on Job Work. As per the provisions the Principal is allowed to take credit on inputs send to Job Worker. The Principal is also allowed to take credit on inputs directly send to the Job Worker without being first brought to his place of business as discussed above.
If the Job Worker is registered under the Act then any waste, scrap generated during Job Work maybe disposed/sold/supplied directly by the Job Worker from his place of business otherwise the Principal has to pay tax and dispose/sell the scrap generated during Job Work.
Roshan Thomas, FCA