JOB WORK AND JOB WORKER UNDER GST REGIME (PART-1)

[Dr. Sanjiv Agarwal]

Introduction

Job-work industry constitutes a significant sector in Indian economy. It’s an indispensable extended arm of India's industrial sector contributing significantly to GDP. ‘Job work’ basically includes outsourced activities which may or may not result in manufacture.

A large number of industries find it difficult to complete the entire process of production or manufacturing activity on their own. As such, the industry depend on outside support for many things, like, testing, various intermediate processes on raw material etc., for completing/intermediating the manufacturing process.

Presently in industry field, many manufacturers send inputs/semi-finished inputs for some or other process. The activities undertaken by small/medium industries on inputs/semi-finished inputs as per the directions of the principal manufacturer are known as job works and the person who undertakes the job work is commonly known as job worker, generally in small sector.

Meaning of Job work

For the purpose of job work, the 'principal' means a registered person who sends any inputs or capital goods, without payment of tax, to a job worker for job-work and from there subsequently send to another job worker and likewise or returned to principal. [Section 143(1) of the CGST Act, 2017].

'Job work' means the processing or working on goods supplied by the principal so as to complete a part or whole of the process. The work may be the initial process, intermediate process, assembly, packing or any other completion process. The goods sent for job work maybe raw material, component parts, semi-finished goods and even finished goods. The resultant goods could also be a variation of the same or the complete product.

Additionally, ‘job work’ means any treatment or process is undertaken by a person on goods belonging to another registered person and the expression ‘job worker’ shall be construed accordingly. [Section 2(68) of the CGST Act, 2017].

This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986. In the said notification, job work has been defined in such a manner so as to ensure that the activity of job work must amount to manufacture. Thus the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the proposed GST regime.

Examples of common job works are slitting, machining, welding, painting, electroplating, assembly, powder coating etc. Job works are also widely resorted to in textile, agri-processing, printing, gems & jewellery sectors etc.

Many a times, the job worker may be more efficient, both in terms of the quality and cost as compared to the main manufacturer due to the pursuance of core competencies and economies of scale. Most of the big manufacturers, in fact, make very good use of this concept or practice and assign non-core or even standard processes to more than one vendor which enables them to cut down on manufacturing costs.

Taxation under Present Regime

Under the present tax regime, job works are subject to both, central excise duty as well as Service Tax. So far as Service Tax in concerned, certain job works on processes of production or processing are under negative list. Accordingly, in terms of section 66D (f) of the Finance Act, 1994, services by way of carrying out any process amounting to manufacture or production was in negative list which has been omitted by Finance Act, 2017 w.e.f. 31.03.2017 only. Further, entry No. 30 of exemption Notification No. 25/2012-ST dated  20.06.2012, exempts following types of job works:

Services by way of carrying out:

1. Any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption; or
2. Any intermediate production process as job work not amounting to manufacture or production in relation to:

1. agriculture, printing or textile processing;
2. cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act, 1985;
3. any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer; or
4. processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year.

Taxable Person

Under GST, ‘taxable person’ means a person who is registered or liable to be registered under the provisions of GST Act, 2017.

An establishment of a person who has obtained or is required to obtain registration in a State and any of his other establishments in another State shall be treated as establishments of distinct persons for the purposes of GST law.

A person, who has obtained or is required to obtain more than one registration in one State or more than one State, shall be treated as distinct persons in respect of each such registration.

Therefore, transactions, such as stock transfer, capital goods etc, between two processing units or administration offices of the same job worker, shall be treated as supply. Since such transaction is made between two distinct persons, therefore, such supply would be subject to levy of GST.

Threshold Limits

Under Excise law, the benefit of normal SSI exemption (exemption based on the value of clearance) is presently available if the value of manufactured goods (on own or through job worker) cleared domestically does not cross threshold limit of INR 1.5 crores.

In the case of Service Tax, exemption limit is an aggregate turnover of INR 10 lakh in a financial year. However, under GST regime, the limit of threshold exemption will be enhanced to INR 20 lakh on all India basis except in the case of North-eastern and hilly States (total 11 States) where it will be INR 10 lakhs. These States are Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, Himachal Pradesh, Jammu & Kashmir and Uttarakhand.

For this purpose, the definition of ‘aggregate turnover’ has been provided in section 2(6) of the GST Act, 2017 which is different from the existing one. Since, under GST regime, limit of threshold exemption will be reduced to INR 10 or 20 lakhs from INR 1.5 crore, it will adversely affect the manufacturers. In the case of service providers, it will be beneficial.

Registration

According to section 22 of GST Act, 2017, every supplier shall be liable to be registered under the Act in the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds rupees 10 lakh in the North-East States including Sikkim and hilly area and rupees 20 lakh for India except the North-East States including Sikkim and hilly area. Therefore, the threshold limit of rupees 20 or 10 lakh is available for registration under GST. A taxable person can also opt for composition scheme if his aggregate turnover is more than rupees 20 or 10 lakh and less than rupees 50 lakh.

According to section 24 of CGST Act, 2017, there are certain categories (12) of persons who are required to get registration irrespective of any threshold limits, such as –

1. persons making any inter-State taxable supply
2. persons who are required to pay tax under reverse charge
3. persons who make a taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise.

As job work is a service, the job worker would be required to obtain registration if his aggregate turnover exceeds the prescribed threshold.

Composition Levy

Composition levy has been in vogue in indirect taxes to address the compliance issues vis-a-vis revenue in case of small job workers and their specific business units having complexity in the determination of valuation of taxable amount.

Under GST regime, there is also a concept of composition levy. An alternate levy for small  businesses( like job work business), whose aggregate turnover in financial year doesn’t exceed INR 50 lakh, composition levy in lieu of tax will be payable at the proposed rates but not exceeding than 1 per cent in case of manufacturer and 0.5 per cent for others (basically traders). There will be equal SGST/UTGST. Thus, total tax payable will be double of the aforesaid rates.

Under GST regime, ‘aggregate turnover’ includes the aggregate value of-

• all taxable supplies,
• exempt supplies,
• exports of goods and/or services and
• inter-State supplies of a person having the same PAN,

to be computed on an all India basis.

However, following amounts will be excluded -

• Taxes, if any, charged under the CGST Act, SGST Act, UTGST Act and the IGST Act, as the case may be;
• The value of inward supplies on which tax is payable by a person on a reverse charge basis and the value of inward supplies.
• The value of non-taxable supplies.

It is important to note that-

• the expression ‘aggregate turnover’ shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals.
• the supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the principal and the value of such goods shall not be included in the aggregate turnover of the registered job worker.

Benefits of composition scheme are not available to certain categories of persons, such as one,

1. who is engaged in the supply of services, or 
2. who makes any supply of goods which are not leviable to tax under the GST, or 
3. who makes any inter-State outward supplies of goods.

Accordingly, if the process undertaken by the job worker amounts to manufacture/ deemed manufacture of goods (except as may be restricted by the Government), then such job worker is eligible to opt for composition scheme. In case any process does not amount to manufacture/deemed manufacture or services only, then such job worker is not eligible for composition scheme.

Supply

In the case of job work, the supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the principal.

Goods sent by a taxable person to a job worker will be treated as supply and liable to GST will be treated as a supply as supply includes all forms of supply such as sale, transfer, etc. However, the registered taxable person (the principal), under intimation and subject to such conditions as may be prescribed send any inputs and/or capital goods, without payment of tax, to a job worker for job work and from there subsequently to another job worker(s) and shall either bring back such inputs/capital goods after completion of job work or otherwise within 1 year/3years of their being sent out or supply such inputs/capital goods after completion of job work or otherwise within 1 year / 3 years of their being sent out, from the place of business of a job worker on payment of tax within India or with or without payment of tax for export.

Job work Procedures

1. A principal (registered person) may under intimation and subject to prescribed conditions, sends any inputs or capital goods to a job worker for job-work and from there subsequently, send to another job worker and likewise without payment of tax.

2. After completion of job work or otherwise, principal shall-
   1. bring back inputs or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax.

2. supply such inputs or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be.

3. It is important to note that the there is no time limit for bringing back moulds and dies, jigs and fixtures, or tools.

4. The goods shall not be permitted to be supplied from the place of business of a job worker unless principal declares the place of business of the job-worker as his additional place of business except in a case-

1. where the job worker is registered under section 25 i.e., the procedure for registration, or

2. where the principal is engaged in the supply of such goods as may be notified by the Commissioner.

5. The principal shall be responsible for keeping proper accounts for the inputs or capital goods instead of job worker.

6. In case where the inputs or capital goods, other than moulds and dies, jigs and fixtures, or tools sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker within a period of one or three year(s) respectively of their being sent out, it shall be deemed that such inputs or capital goods had been supplied by the principal to the job-worker on the day when the said inputs or capital goods were sent out.

7. Any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered.

8. It is important to note that for the purposes of job work, the input includes intermediate goods arising from any treatment or process carried out on the inputs by the principal or the job worker.

Transportation of Goods for Job work without issue of Invoice

1. For the purposes of transportation of goods for job work, the consigner may issue a delivery challan, serially numbered, instead of tax invoice at the time of removal of goods for transportation.
2. The delivery challan shall be prepared in triplicate, in the case of supply of goods, in the following manner:–

1. the original copy being marked as ‘original for consignee’,
2. the duplicate copy being marked as ‘duplicate for transporter’; and
3. the triplicate copy being marked as ‘triplicate for consigner’.

Where goods are being transported on a delivery challan in lieu of invoice, the same shall be declared in FORM [Part A of FORM GST INS-01]

(To be continued......)

Discussions to this article

[kailash karle]

Job work "Textile Processing "

Textile processing is predominantly done on job work basis in the power loom sector. The processor receives Grey/un processed fabric on the behalf of their client/s. In this case inputs i.e. chemicals, power , fuel etc is purchased by the job worker (Processor).

Processed fabric is handed over as per request of client

1. Is textile Processing (on job work) covered under GST if yes how will it be applicable.

2. If GST is not applicable then will the job worker be able to claim input credit which they are getting credit for presently.

Thankyou

Regards Kailash.K

[dilip kumar]

Is textile Processing (on job work) covered under GST if yes how will it be applicable. Bcoz i worked in job worker company. sir also tel me gst rate for job worker

[Vikram Jain]

GST rate is 18% for textile process jobworker.

[V ALAGAPPAN]

in the meeting held on 11.06.2017 the council has decided to reduce the rate to 5% in the case of yarns & fabrics ( other than man made ). Almost all fabrics contain synthetic material and as such this Reduction is not beneficial. Ultimatly the textile manufacturers have to include the ITC lost in the cost of material.

[Surender Gupta]

With due respect,

Entry no. 3 of Schedule 2 of the CGST Act, 2017 specifically states that, "Any treatment or process which is applied to another person's goods is a supply of services."

And all the service providers (except one) are specifically excluded from the scope of composition scheme u/s 10(2)(a).