In the previous article, we
concluded that the GST law has widened the scope of job work from its
predecessor law by considering ‘any’ treatment or process undertaken on goods
belonging to another registered person as a ‘job work’. Job work under GST law
could be viewed from two vintage points – (a) job worker’s view point with
respect of determination of his output tax liability; and (b) recipient/
principals’ view point with respect to movement of goods and retention of input
tax credit. The said article aims at discussing Job Work under various sub
topics from these viewpoints.
A) Supply – whether deemed Supply between distinct persons?
Movement of goods for job work
reduces the cash flow cost (to the extent of tax component) of an organisation.
GST law has innovated with the concept of distinct persons wherein distinct
registration numbers having the same PAN is deemed as independent persons (even
though they may be in the same state). Does this fiction extend even to job
work arrangements? Whether factory A can operate as a job worker for factory B
as distinct persons even-though they are holding the same PAN?
Section 25(4) of the CGST Act
states that a person having registration in multiple states would be treated as
distinct persons in each of the State for the purpose of the CGST/IGST/SGST
Act. This deeming fiction seemingly applies to all provisions of the GST law.
Schedule I deems transactions without consideration between distinct persons as
taxable only when there is a ‘identified supply’ between such distinct persons.
Since job work arrangements do not entail a supply (in the nature of sale,
barter, exchange, etc) between factory A to B, it would be permissible to move
goods between states without any GST implications. The goods can undergo
processing and cleared therefrom on payment of GST. While there may be
practically challenges to prove the aspect of a principal-job worker
relationship without a written contract between factory A to B, the self
generated delivery challan and ITC-04 should ideally serve as an expression of
the job work arrangement.
B) Classification – Supply of Goods/ Services
Job work as a Supply of Service – Job work
transactions have been deemed to be a ‘supply of service’ under Entry 3 of
Schedule II. The scope of the entry is wider in comparison to the definition of
job work in as much as it does not require the owner of the goods to be a
registered person. This entry would certainly put to rest any litigation over
the classification of such transactions on the grounds of percentage of
material involved, dominant intention, end deliverable, etc. In its Circular
No. 52/26/2018-GST, CBEC has stated that body building activity involving
supply of the entire body over the chassis owned by the principal is taxable as
supply of services @ 18% and not at the rate applicable to the goods (28%).
Therefore, in job work arrangements one would necessarily have to examine the
tax rate and exemption as applicable to services irrespective of the rate
applicable to the goods involved in such contract. The modelling of contracts
as job work or sale and purchase would become significant where the applicable
tax rate for the goods is substantially lower say exempt/ 5-12% in comparison
to the standard job work rate of 18%.
Job work vs.Works contract – Is there
an overlap between job work (section 2(68)) and works contract (section 2(119))
where an immovable property is involved in the arrangement? For eg. fabrication
services at site during construction of building/ storage tank for the
principal/ contractee could have two aspects:
- Process of fabrication as
a treatment / process on goods. SAC classification under job work (99887)
states that such fabrication manufacturing services of metal structures, steam
generators, etc., is classifiable as job work and taxable at 18%.
- Process also involves
erection of movable property as an immovable property. SAC classification (99544)
covers assembly and erection of prefabricated constructions under the works
contract / construction service category and taxable at 18%.
Explanatory notes to the SAC
classification codes provide that specific description would prevail over
general description. Going by this principle, it appears that classification as
a works contract prevails over job work (on the basis of the specific
definition of work contract w.r.t. immovable properties) and the tax rates as
applicable to work contract would apply. The end deliverable under the
contractual arrangement is the erection of the civil structure and job work
should be considered as only the means and not the end.
The important
point to note here is that the classification of service under Schedule II is
relevant only with reference to the job worker’s view point (i.e. his output
tax liability). This classification at the job worker’s end should not bar the
principal from availing the benefits of job work procedures. The principal
should still be permitted to send the goods to the job workers premises for any
specific activity (such as twisting, bending, etc.) under job work procedure
even-though the job worker may ultimately raise a works contract invoice on its
output activity. While this view is subject to debate, the author believes that
understanding of job work from the principal’s perspective does not necessarily
have to translate into the classification as a job work on the job worker’s
output invoice.
Job work vs. Manpower Supply
Contracts – Job work has been specifically defined unlike manpower service
contracts. In certain instances where a person outsources specific processing
functions of a product to third party either on man-day/man-hour basis, the
dividing line between it being classified as a job work contract or a manpower
contract is blurred. In cases where the supplier takes responsibility over the
assignment of personnel to a particular entity for a specified job but does not
undertake the obligation over the quantum / quality of output from such
assigned personnel, the contracts would typically be in the nature of manpower
supply contracts (SAC 998513/4). Where the supplier takes over the obligation
of ensuring the quality / quantum of the product processed by the personnel so
assigned under its supervision and direction, the supplier would be
classifiable as a job worker. Decisions under both excise/ service on whether a
person is a ‘manufacturer/ service provider’ or mere supplier of hired labour
would provide some guidance on this aspect.
C) Place of
Supply – Inter-State / Intra-State
Job work transactions being
classified as ‘supply of service’ would be governed by the place of supply
provisions as applicable to services u/s. 12/ 13 of the IGST Act. Some unique
instances have been provided below:
Job work for SEZ units/ developers – Supply of
job work service would be an inter-state supply, irrespective of the location
of the supplier of service or the place of supply u/s. 12 of the IGST Act, as
long as they are carried out for authorised operations of the SEZ unit/
developer. For the SEZ unit/ developers where physical movement of goods takes
place across the SEZ area, one will have to follow procedures of procurement of
‘goods’ under the SEZ rules (Rule 41/ 50 of SEZ rules which are discussed
later) even though the transaction may be classified as a supply of ‘service’
under the GST law. The deeming fiction of treating job work as a service
transaction under Entry 3 of Schedule II has limited operation under the GST
law and does not extend to the SEZ law.
Export of goods outside India for
Job Work – Export of goods under job work arrangements outside India would
be governed by section 13 of the IGST Act. Section 13(3) read as follows:
“(3) The place of supply of the
following services shall be the location where the services are actually
performed, namely :-
(a) Services
supplied in respect of goods which are required to be made physically available
by the recipient of services to the supplier of services, or to a person acting
on behalf of the supplier of service in order to provide the services:… ”
Generally, job work would be
regarded as performing a treatment/ process on goods under physical possession
(as a bailee). The definition of job work indicates the activity would be
clearly governed by section 13(3) – performance based activity and the place of
supply in case of exported goods would be location where the services are
actually performed i.e. outside India. Since the place of supply is outside
India, the transaction would not be taxable in the hands of the job worker
supplier.
The transaction would also not
qualify as an import of service in terms of section 2(11) of the IGST Act.
Though the RCM notification issued u/s. 5(3) of the IGST seeks to impose tax on
reverse charge basis on the basis of location of the recipient and not on the
basis of place of supply rules, in view of the author, this is a transaction
outside India and not taxable under the provisions of section 5(1) of the IGST
Act itself. No RCM liability can be attached on a non-taxable transaction.
From a customs perspective, export
movement is generally duty free except for some export duty goods. For Import
movement Notification 45/2017-Cus dt. 30-06-2017 grants customs duty exemption
(incl. IGST) to goods originally exported, at the time of reimport within 3
years, provided the goods are ‘same’ as those exported. Explanation to the
notification states that the goods would not be same if they are subjected to
re-manufacturing, reprocessing through melting, recycling or recasting abroad.
In such arrangements, challenge would arise on whether the job worked goods
constitute ‘same’ goods. In case the goods do not get the customs duty
exemption, it would be regarded as a fresh import and subjected to customs duty
incl. IGST on the enhanced value of the product.
Be that as it may, one can
certainly take a view based on the celebrated decision of Hyderabad
Industries vs. UOI 1999 (108) E.L.T. 321 (S.C.) that IGST component u/s.
3(7) of the Customs Tariff Act is counter-veiling in nature and hence cannot be
imposed on imports under job work in the absence of a transaction of ‘supply’
between the parties involved1. The transaction is deemed to be a
supply only in limited cases when the conditions of job work are breached by
the principal and not otherwise.
___________________________________
1 There is a slight variation in the way section 3(1), (3) and
(5) are worded in comparison to 3(7) of the Customs Tariff Act, 1975.
Import of goods into India for Job
work – Goods are imported into India for job work. While the job work
is performed in India, the location of the recipient of such job work (i.e.
principal) is outside India. Strictly speaking this arrangement does not fall
within the ambit of the definition of job work since the owner of the goods is
not a ‘registered person’. Nevertheless we will analyse this job work
transaction as understood in commercial sense.
Under the GST law, by application
of section 13(3), the place of supply would be held to be in India. By way of a
proviso2 to section 13(3) (extracted below), the place of supply in
such transactions has been fixed to the location of the recipient of job work
services rather than the place of performance of the job work.
“Provided further that nothing
contained in this clause shall apply in the case of services supplied in
respect of goods which are temporarily imported into India for repairs or for
any other treatment or process and are exported after such repairs or treatment
or process without being put to any use in India, other than that which is
required for such repairs or treatment or process;”
In view of this proviso, the
transaction would be considered as an export of service and zero-rated in terms
of section 16 of the IGST Act. The Customs law vide Notification 32/1997 dt.
1-4-1997 permits temporary imports into India for the purpose of job work,
etc., subject to certain conditions over time limit, use etc. Therefore, import
of goods for job work should not have any implications in India.
Inter-state job work – Job work
transactions would be inter-state or intra-state and largely dependent on the
location of the supplier and recipient of the service in terms of section 12(1)
of the IGST Act. Where the location of the supplier and recipient is in the
same state, it would be an intra-state transaction and vice-versa. Except in
cases involving an immovable property, the location of supplier of service and
recipient of service would be the only determinants in deciding the inter-state
character of the transaction. Provisions of CGST Act would apply to inter-state
transactions as well (section 20 of IGST Act) and hence all benefits extended
to intra-state arrangements would equally apply even to inter-state movements.
From a principals perspective for
intra-state job work movement, further supply of goods after job work either
from the principal location or job workers location would not pose any
particular challenge since the registered location of the supplier and the
physical location of the goods is in the same state. The further supply would
be treated as inter-state or intra-state depending on the movement of the
goods.
In certain inter-state job work
movement where the principal does not receive the goods back but decides to
supply the processed/ job worked goods directly from the job worker’s location
to its customer, there is a challenge in deciding the location of the supplier.
This is primarily because the registered location of the supplier is different
from the physical location of goods. It is depicted below:
________________________________________________
2 Broadened
by the IGST amendment Act, 2018 and yet to be notified.
In such transactions, the initial
movement of goods takes place from KA-MH under a delivery challan for the
purpose of job work. The supplier may or may not have a confirmed order for
supply of the said goods to a customer in MH. Assuming there is no confirmed
order, after job work, the principal supplies the goods directly to its
customer in MH. A question arises on the type of tax to be charged on the sale
invoice (i.e. IGST/ CGST+SGST).
The IGST Act states that where the
supply involves movement of goods within a state, the transaction would be
intra-state, else it would be classified as an inter-state transaction. In this
case, the first movement of goods by the supplier is under an arrangement of
job work and not under a binding contract of supply with the customer. It is
only when the order is received from the customer in MH that the second
movement commences, which then terminates in MH. Going by the fabric of the
entire GST law and also the fact that job work is merely facilitation provision
and does not materially alter other obligations under GST, one can take a stand
that this is an inter-state transaction despite the fact that the movement
commences and terminates in the same state3. This reconciles with
the overall scheme of source and consumption principle of value-added scheme of
taxation.
_________________________________________________
3 It
must be noted that this is not a Bill to Ship to case as is envisaged in
section 10(1)(b) but a case where the billing location and dispatch location
are in different states.
D) Valuation
under job work
Job work transactions are liable to
tax on its transaction value i.e. price paid or payable by the principal to the
job worker for the job work service. There is a clear departure from the excise
principle of notionally re-valuing the goods after job work and subjecting the
same to excise duty. Under job work, valuation is only restricted to the
service rendered by the job worker. The price charged for the job work service
would then be subject to all the additions/ exclusions as provided u/s. 15(2)
and (3) of the Act. Certain important points have been stated below:
Recoveries on disposal of
scrap/ waste from Job Work
The erstwhile Cenvat rules was
silent on the treatment of waste and scrap arising during the course of
manufacturing final products at the premises of job worker. This resulted in
litigation on the person liable to excise duty on such waste/ scrap. Section
143(5) of the GST law now provides that the waste and scrap generated during
the job work may be supplied by the registered job worker directly from
his place of business or by the principal in case the job worker is not
registered. A question arises on whether the liability of recoveries on waste/
scrap generated from job work arises on the job worker in all cases?
In this context, job work contracts
can be classified into two categories: (a) Contracts where the responsibility
of utilisation and/ or disposals of scraps or waste emerging from the goods is
on the job worker. In such cases by virtue of the contract, the scraps and
waste are to the account of the job work and any recoveries from waste/ scraps
would be retained by the job worker. Accordingly, such recoveries should be
taxable in the hands of the job worker and not the principal. (b) In other contracts waste and scraps are
to the account of the principal and the job worker has to report the generation
of such items to the principal. The principal may either receive the goods back
or direct the job worker to dispose them under its authorisation to a third
party. Generally, two sub-scenarios arise in this category (b-i) principal
sells the goods under its invoice and directs the job worker to collect the net
proceeds (as a collection agent). The principal should report this turnover and
discharge the tax liability on such transaction; (b-ii) job worker sells the
goods in its possession under its own invoice effectively operating as a
‘selling agent’ of goods belonging to the principal – in such case the
recoveries would be taxed in the hands of the principal (as a deemed supply
between principal and agent under Schedule I) as well as in the hands of the
job worker (as a selling agent).
Is there a conflict that may
possibly arise by virtue of a contract and the statute? In view of the author,
the provisions of section 143(5) should not be given a strict application in
all cases in view of the use of the term ‘may’. The contract should be given
prominence before determining the person liable to pay tax on such recoveries.
Section 143(5) should be understood as giving an option to the principal to
decide the more economical and viable options viz., to bring back the wastes
and scraps or to clear the same from job worker premises on payment of taxes by
himself or by the job worker, as the case may be.
The following judgements General
Engineering Works vs. CCE 2007 (212) ELT 295 (SC) clearly explains the
position of earlier law and the importance of contractual terms in order to
ascertain the appropriate value:
“4. It is an admitted position that
to manufacture 100 Kgs. of points and crossings, 105 Kgs. of raw material has
to be used. Therefore, in working out the value of points and crossings the
cost of 105 Kgs. of raw material would have to be taken into account.
Undoubtedly, when points and crossings are manufactured a small quantity of raw
material become scrap/waste. But that does not detract from fact that to
manufacture 100 kg. of points and crossings 105 kg. of raw material has to be
used. This element i.e. the cost of raw material would remain the same
irrespective of whether scrap/waste is returned to the Railways or kept by the
Appellants. The Appellants charge what are known as conversion charges. This
includes their labour charges. Such conversion charges would have to be added
to the cost of raw material. To this would have to be added profits, if any,
earned by the processor (Appellant). Thus suppose the conversion charges are
Rs. 450/-, the cost of 105 Kgs. of raw material is Rs. 1,000/-, and Rs. 50/- is
earned from sale of scrap the value of the points and crossings would be Rs.
1,500/-
5. It must be clarified that the value of scrap would be included in the value
of the points and crossings only in case where it is shown that the conversion
charges get depressed by the fact that the processor is allowed to keep and
sell the scrap. Thus in the example given above, it would have to be shown that
the conversion charges are Rs. 450/- because Rs. 50/- is earned from the sale
of scrap. If the conversion charges are not depressed or if the scrap/waste is
returned then, their value will not get added.
6. The burden of proving that the
price is so depressed would be on the Revenue. But one of the methods of
proving it would be through the contract between the parties itself. In this
case the contract is on record. The contract provides as follows : –
“The prices quoted are based on the
free supply of Rails by you at our works, Bharatpur, Western Railway,
Rajasthan. The tonnage for Rails will be 5% more than the net requirement of
Rails required for different items of Switches, 5% being the manufacturing
wastage…………
The total requirement of Rails for
different items would be forwarded to you within ten days of receipt of your
formal order. Manufacturing wastage of 5% has been considered and therefore
this wastage will not be separately accounted for and shall not be returned. Any
surplus materials received from you against the contract, will be returned to
you and dispatched to the destination as advised by you, F.O.R.”
7. Thus, the contract clearly
indicates that the price (conversion charges) have been worked out on the basis
that 5% wastage would be available to the Appellants. This indicates that the
price has been affected by the sale of scrap. In this view, we are in agreement
with the view of the Tribunal that in computing the value of points and
crossings the value of scrap sold has to be taken into account.”
Includibility of Value of FOC items
(such as inputs, moulds, dies, etc.)
Job workers in many instances are
supplied with moulds, dies, etc., for rendering the service. The Central excise
and GST law both use the phrase that ‘price should be sole consideration’.
Under excise provisions, explanation to Rule 6 of the Central Excise
(Determination of Price of Excisable Goods) Rules, 2000 required the
manufacturer to include the amortised value of moulds, etc., in the value the
final product manufactured by the job worker. This practice under excise law
would certainly pose challenges during the GST period. The issue is whether a
notional value is to be attributed to the value of job work service on account
of (a) price not being the sole consideration in view of the FOC item; or (b)
in view of section 15(2)(b) of the GST law requiring the supplier to notionally
add value of all expenses incurred by the principal. Both are in some sense
correlated and section 15(2)(b) is an elaboration of the adjustment where price
is not the sole consideration.
Section 15(2)(b) has the following
cumulative conditions:
- Supplier (job worker) is
making a supply (job work service) to its recipient (principal), typically
under a contract;
- An amount is liable to
be paid by the supplier (job worker);
- Such amount has been incurred
by the recipient (principal)
- And accordingly this is
not included in the price payable for supply (job work service)
In job work arrangements, the
moulds are purchased by the principal for multiple commercial reasons such as
high costs, IPR protection, etc. This is done in its own interest. One of the
primary conditions of section 15(2)(b) is that there has to be a primary
liability on the job worker to incur an expense, either under a contract or as
part the scope of work assigned to the job worker, which is subsequently taken
up by the principal, thereby reducing the net price as originally agreed in the
contract, for eg. a textile manufacturer agrees to outsource the dyeing of x
mtrs of textile with dyes/inks/ impressions as part of the responsibility on
the job worker and fixes a price of y/mtr. Subsequently, the manufacturer
procures the ink of specified type and supplies the same to the job worker and
reduces the price payable to y-1/mtr. In such cases, the dye could be
notionally added onto the value of supply in the hands of the job worker. In a
contrasting case, if the price was originally agreed at y 1/mtr with the supply
of dye being part of responsibility of principal, there is no liability on the
job worker to use his own dye for the process. The important driver for trigger
of this provision is that the liability of job worker should precede
the act of incurring the expense by the recipient. Fulfilment of one’s own
obligation is distinct from fulfilment of another person’s obligation and
15(2)(b) is addressing only the later obligation. In a transaction based law,
price agreed for a set of obligations (as a counter promise) should be the only
basis for valuation under GST.
E) Compliance of Job work
provisions
Outsourcing
by job worker himself – The law permits the principal to send the goods for job work to
multiple job workers. Outsourcing by job workers as a principal himself may be
permitted contractually but the law does not contain specific provisions for
job workers to send the goods at their own behest (in capacity of a principal).
One may view this from two perspectives.
The definition
of job work suggests that the law does not mandate that the goods should belong
to the principal i.e. the goods can be belong to any registered person. The
term principal is understood only u/s. 143 as being the person who ‘sends’ the
goods for job work. Therefore, this
suggests that the job worker can function as a principal while sending the
goods for a second level job work. All provisions of the law as applicable to
principals would equally apply to the job worker when operating as a principal.
The other aspect is from the point
of view of section 143(2) which states that the accountability of the goods
under job work always lies with the principal. The accountability on the
principal u/s. 143(2) has been placed as a consequence of the fact that he has
availed input tax credit on such goods. This responsibility over the goods
under law cannot be shifted from the primary principal to the job worker. Even if there is a clandestine removal of
goods without authorisation/ knowledge of the principal at any point of time,
the recovery of the tax on such goods would only be made by the person availing
the benefit of input tax credit i.e. principal. Since the job worker has not
availed the benefit of input tax credit on such goods, the onus is always on
the principal who has availed this facility to ensure that the goods are within
its supervision until all the conditions of job work are satisfied. While
outsourcing by a job worker to a sub-job worker is not barred, the
accountability over the goods under law still rests on the primary principal
only.
In-house job
work activity – There are instances where a job worker performs the job work
activity in the premises of the principal for commercial reasons. In such
cases, the place of supply provisions would operate on similar lines and the
location of the principal and the job worker would decide the inter-state
character of the transaction (unless the job worker constitutes a fixed
establishment in the premises of the principal). Under these arrangements, the job
worker may have to move certain tools, equipments etc to the principal’s
premises and return those back to the original location. Section 19 and 143 is
applicable only cases where principal moves goods to the job worker’s premises
and not the other way round. However, in cases of in-house job work activity,
the principal does not need the facility of these sections since the entire
activity is occurring in-house. The job worker on the other hand is moving the
goods without an intent of supply but self-use. In view of the author, in the
absence of a transaction of supply between the job worker and the principal,
the job worker can still move the goods to the principal’s location and retain
the input tax credit by use of a delivery challan.
Possible consequence of violation
of Job work provisions
Violation of job work provisions
can be clubbed under two baskets (a) violation of substantial requirements
(such as arrangement not falling under the scope of job work, non-return of
goods within prescribed time etc) (b) violation of procedural requirements
(such as non-filing of ITC-04, etc).
(a) Violation
of substantial provisions: Conceptually any violation should be rectified
by restoring the benefit originally granted to the tax payer. In a job work transaction,
the principal avails the benefit of input tax credit on inputs/ capital goods
(i.e. skips the stage of reversal and reclaim) even-though the goods are not in
its possession. Section 143(3) & (4) deems the inputs/ capital goods as
being supplied by the principal to the job worker if they are not returned
within the time limit. Valuation rules do not provide any mechanism for
valuation of goods violating the job work provisions. In the absence of a
contractual consideration for the deemed supply of goods, does this mean that
the principal would have to pay tax on a notional value in terms of open market
value of the goods under job work? In the view of the author this may not be
so. The deeming fiction is to be understood in the context of the original
benefit extended to the supplier which is limited to recover the input tax
credit availed on the goods which have violated the job work provisions. It
would be legally in appropriate to assume this transaction as an independent
supply and subject it to tax in the hands of the principal at a notional value.
(b) Violation
of procedural provisions: Any procedural violation which is curable and
condonable should not have any adverse implication. Where the principal has
failed to make the necessary intimations of goods sent for job work, it can be
cured by producing books of accounts/ records evidencing the outward and inward
movement which conclusively establish the use of the goods under job work. In
cases where goods are duly accounted, it would be incorrect to saddle the
principal with an additional tax liability by invoking provisions of section
143(3) / (4). The penal provisions for non-filing of the relevant forms would
continue to apply.
F) Procedural matters
Documentation requirements
Movement of goods between the
principal and job work is required to be covered under a delivery challan (DC)
in terms of Rule 45 r/w 55(1)(b) of CGST/ SGST Rules. This is also required to
be accompanied by a e-way bill in terms of Rule 138(1)(ii) of the said Rules.
Certain specific provisions have been provided under the e-way bill rules for
job work arrangements (CBEC Circular No. 38/12/2018):
- Where goods are sent by
principal to only one job worker: The principal shall prepare a DC for sending
the goods to a job worker. Two copies of the DC may be sent to the job worker
along with the goods. The job worker should send one copy of the said challan
along with the goods, while returning them to the principal. The FORM GST
ITC-04 will serve as the intimation as envisaged u/s. 143 of the CGST Act,
2017.
- Where goods are sent from
one job worker to another job worker: In such cases, the goods may move under a
DC issued either by the principal or the job worker. In the alternative, the DC
issued by the principal may be endorsed by the job worker sending the goods to
another job worker, indicating therein the quantity and description of goods
being sent. The same process may be repeated for subsequent movement of the
goods to other job workers.
- Where the goods are
returned to the principal by the job worker: The job worker should send one
copy of the DC received by him from the principal while returning the goods to
the principal after carrying out the job work.
- Where the goods are sent
directly by the supplier to the job worker: In this case, the goods may move
from the place of business of the supplier to the place of business/premises of
the job worker with a copy of the invoice issued by the supplier in the name of
the buyer (i.e. the principal) wherein the job worker’s name and address should
also be mentioned as the consignee, in terms of Rule 46(o) of the CGST Rules.
The buyer (i.e., the principal) shall issue the challan under Rule 45 of the
CGST Rules and send the same to the job worker directly in terms of para (i)
above. In case of import of goods by the principal which are then supplied
directly from the customs station of import, the goods may move from the
customs station of import to the place of business/premises of the job worker
with a copy of the Bill of Entry and the principal shall issue the challan
under Rule 45 of the CGST Rules and send the same to the job worker directly.
- Where goods are returned
in piecemeal by the job worker: In case the goods after carrying out the job
work, are sent in piecemeal quantities by a job worker to another job worker or
to the principal, the challan issued originally by the principal cannot be
endorsed and a fresh challan is required to be issued by the job worker.
E-way Bill requirements
- E-way bill is required to
be issued for movement of goods under a DC. The e-way bill is generally
required to be generated by the person causing movement of goods. In case of
job work, the provisions permit the either the principal or the job worker to
raise the e-way bill for movement.
Quarterly
reporting of movement in Form ITC-04
- Rule 45(3) of the CGST
Rules provides that the principal is required to furnish the details of DCs in
respect of goods sent to a job worker or received from a job worker or sent
from one job worker to another job worker during a quarter in FORM GST ITC-04
by the 25th day of the month succeeding the quarter or within such period as
may be extended by the Commissioner. FORM GST ITC-04 will serve as the
intimation as envisaged u/s. 143 of the CGST Act.
G) Challenges in
Compliance
Difference in unit of measurement
(UOM)/ quantity
Many a times, difference arises in
the UOM between goods sent and received under job work. Form ITC-04 originally
required that goods sent and received should be strictly correlated in terms of
the original UOM. The law also required the original delivery challan should be
enclosed with the delivery challan raised on return of goods. While in practice
there many reasons due which it is impossible to make a one-to-one correlation with
each outward and inward movement (eg. raw materials sent in batches, raw
materials losing their original identified, etc). The form has now been
recently rationalised wherein one-to-one correlation between outward challan
and inward challan is not mandatory if it is impossible for the principal to
ascertain. Therefore, as long as the principal can establish the conversion
ratio and account of the goods under job work, it may not be mandatory for the
principal to report each outward movement with the inward movement.
Whether job work provisions are applicable where raw material is exempt and
job worked product is taxable?
Section 143/ 19 are applicable only
on inputs/ capital goods i.e. goods used in business and on which tax is
leviable under the GST law. In cases where the raw material is exempt (such as
sugar to sugar cane), one may take a stand that since input tax credit has not
be availed on such goods, job work provisions need not be strictly followed.
Whether procedural provisions (such
as e-way bill) applicable when raw material is taxable and job worked product
is exempt?
Job work provisions are applicable
when the inputs under consideration are tax suffered goods and irrespective of
the taxability of goods on their return after job work provisions. Reporting
such movement is mandatory in ITC-04. However, e-way bill requirements are
waived for exempted goods. Therefore such goods may be returned under the cover
of a delivery challan and need not be accompanied with an e-way bill.
What is the value to be declared by
the job worker in the e-way bill on its return?
Certain challenges have been raised
on the value to be declared on the delivery challan on outward and inward
movement of goods under job work. One view suggests that the approx. market
value at the time the movement of goods should be adopted i.e. the return of
goods should be enhanced by the job work charges. The other view may be to adopt the value of
cost of the input/ capital goods under job work for both outward and inward
movement. A third view may be to adopt the value on which input tax credit has
been availed on such inputs/ capital goods for both outward and inward
movement. The author is inclined to believe that the third view conceptually
aligns with the objective of the job work provisions under GST.
Special provisions for SEZ unit/ developer.
A
SEZ unit/ developer is permitted to sub-contract a portion of their processing
activity to other SEZ / EOU or DTA units (in terms of Rule 41 of SEZ Rules).
SEZ unit are also permitted to temporarily remove their capital goods/ inputs
to DTA without payment of duty for job work, testing, repair, refining,
calibration and return thereof (in terms of Rule 50 of SEZ Rules). Rule 40/51
both provide for strict procedures to be followed for outsourced processing
activities to a DTA including the time limit for return, account of the goods cleared, wastage, quantum of
outsourcing, return of moulds, jigs, tools, etc. There could be variances
between the GST law and the SEZ requirements and the SEZ unit as a principal of
the transaction would have to necessarily comply with the more stringent
requirement in order to retain its SEZ benefits.
H) Conclusion
Job work provisions should be
understood as a provision of convenience. Accordingly any misuse/
non-compliance should be viewed as a recovery of the benefit granted and not
beyond that.
