Goods sent on Job Work – Input Tax Credit

[CA Akash Phophalia]

(1) Introduction:

Businesses run on core competencies. It is the fundamental principle of management that business must run efficiently. The specialization and efficiency has resulted in increase in job work for manufacturers. In this article we will deal with the situation of admissibility of input tax credit on inputs sent to a job worker.

(2) Meaning of relevant terms:

Job work – Section2(68) of CGST Act 2017 defines the term as - “job-work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.

Thus where any person performs any process or treatment on good belonging to the other person then such first mentioned person shall be called as job worker and the treatment or process so undertaken is construed as job-work.

Principal- The term principal is not directly defined under the law. However, it simply states that the principal is the person referred as principal in the section 143 of the CGST Act 2017. Accordingly, a registered person, sending goods for job work under intimation and subject to the compliances of specified conditions, is called as principal. It is imperative to note that the principal needs to be a registered person. Thus if goods are sent on job work by any person who is not registered then such activity shall not be construed as job work for the purpose of GST laws.

(3) Whether credit is admissible on inputs sent to job worker:

The input tax credit on inputs sent to a job-worker for job-work shall be admissible to the principal. However, for the purpose of availment of such credit the principal needs to comply with the specified conditions and stipulations.

Further, there is condition precedent to the availment of input tax credit i.e. goods must be received by the registered taxable person. However, if goods are directly sent to the job-worker on behalf of the principal, without being physically received by the principal at its place of business, then also it shall be presumed that the goods are received by the principal and the input tax credit shall be admissible.

Further, it is essential to note that where the inputs 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 one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out and the tax liability shall accrue from such date. However, the period of one year in case where the inputs are sent directly to a job-worker, the period of one year shall be counted from the date of receipts of inputs by the job-worker.

(4) Whether credit is admissible on capital goods sent to job-worker:

The conditions regarding availment of input tax credit on capital goods are similar to the conditions of input except that the time period provide for receipt of capital goods back from job worker to principal is three years.

(5) Process of sending goods on job-work:

In order to send goods to job worker the principal needs to follow the under-mentioned process-

(a) The inputs, semi-finished goods or capital goods shall be sent to the job worker under the cover of a challan issued by the principal, including where such goods are sent directly to a job-worker. This challan shall be issued in three copies as -

(i) the original copy being marked as ORIGINAL FOR CONSIGNEE;

(ii) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and

(iii) the triplicate copy being marked as TRIPLICATE FOR CONSIGNER.

(b) The challan issued by the principal to the job worker shall contain the following details –

(i) date and number of the delivery challan;

(ii) name, address and Goods and Service Tax Identification Number of the consigner, if registered;

(iii)name, address and Goods and Service Tax Identification Number or Unique Identity Number of the consignee, if registered;

(iv) Harmonised System of Nomenclature code and description of goods;

(v) Quantity(provisional, where the exact quantity being supplied is not known);

(vi) taxable value;

(vii) tax rate and tax amount-central tax, State tax, integrated tax, Union Territory tax or cess, where the transportation is for supply to the consignee;

(viii) place of supply, in case of inter State movement; and

(ix) signature

(c) The details of challan in respect of goods dispatched to a job worker or received from a job worker or sent from one job worker to another during a quarter shall be included in FORM GST ITC-04 furnished for the period on or before the twenty-fifth day of the month succeeding the said quarter.

(d) Where the inputs or capital goods are not returned to the principal within the time stipulated, 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 and the said supply shall be declared in FORM GSTR-1 (Return for outward supply details) and the principal shall be liable to pay the tax along with the applicable interest.

Conclusion

The input tax credit shall be admissible on inputs and capital goods sent to the job-worker either by the principal from its place of business or directly from the seller’s place of business, but this is subject to certain conditions and restriction in terms of documentation and process which needs to be complied with strictly.