Job Work Service, Goods and Services Tax - GST

[Kaustubh Karandikar]

A) XYZ had supplied material to the Job worker (Material X)

B) Job worker has used his own material for further processing (Material Y)

C) Job worker has supplied Job work service to XYZ as well, (Service Z).

In the above case, how invoice should be raised by Job worker as per GST requirements, Should it be composite Invoice containing (Material Y & Service Z) or different invoice needs to be issued for Material and Service.

Posts / Replies

[Padmanathan Kollengode]

Single bill for job work service.

[Amit Agrawal]

Does title of the material (Y) gets transferred from job-worker to XYX during / due to the job-work process?

[Padmanathan Kollengode]

I would also draw your attention to Circular 38/12/2018:-

5. Scope/ambit of job work: Doubts have been raised on the scope of job work and whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work. It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

This is why I am of view that materials used by job worker is part of job work service.

[KASTURI SETHI]

Composite value (inclusive of material used by the job worker) to be shown in Job work challan or invoice while returning job-worked goods to the principal.

Hence there is no doubt about single invoice as opined by Sh.Padmanathan Kollengode Ji. It will also cover the issue of ' transfer of title' as pointed out by Sh.Amit Agrawal Ji.

[Amit Agrawal]

Despite above reproduced clarification by Board in the referred circular, I find that issue can be complex in nature - depending upon individual facts / circumstances - due to the followings:

A. Under Schedule II, 'any transfer of the title in goods is a supply of goods' and 'Any treatment or process which is applied to another person's goods is a supply of services'

B. As per Section 2 (68), “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;

C. As per Section 2 (30), “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

NOW, in given facts of the case, if title of Material Y is getting transferred from job-worker to XYX during / due to the job-work process and if supply of Material Y is the 'principal supply' as defined above, whether job-worker can raise bill for supply of 'services'?

Another connected issued - to my mind - is whether is Article 366 (29A) relevant or NOT for levy of GST (i.e. for treating any activity as "deemed sale") considering the fact that GST is levied on 'supply of goods, services or both'?

Please treat this as part of pure academic discussion.

[Padmanathan Kollengode]

Learned Amit Ji,

Answering your second poser first, Article 366(29A) reads as:

(29A) “tax on the sale or purchase of goods” includes-

Thus, to my understanding Section 366 (29A) does not have any application under GST Law as the same has been separately defined under Section 366(12A).

Now in my opinion, If Art. 366(29A) is imported into GST Law, it may open a new pandora's box especially with respect to items in Sch II such as works contract, restaurant services which are deemed as supply of services under GST.

Where the contract/agreement is for job work service and some materials are consumed/used in the job work process, can we artificially bifurcate it as supply of goods and supply of service? To my mind no!

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

You have echoed my thoughts. I was keeping mum with an intent not to hurt feelings of others.

I further add that terms, 'sub-contractor' and 'job-worker' cannot be equated whether it is GST era or pre-GST era.

Principal can never be job-worker. Principal is a manufacturer in this scenario. Job-worker can also be called manufacturer, if duty/tax is paid by him (job-worker) and invoice is issued by him.

If job-worked goods are sent back to the principal, then the principal will be a manufacturer of complete and finished goods.

[KASTURI SETHI]

Dear Experts,

My above reply is meant for Issue ID 118613. Inconvenience caused is regretted.

[Amit Agrawal]

Thanks a lot for sharing your first thoughts, Sh. Padmanathan Ji!

With regards to your comments in post at serial No. 6 above, following questions arises:

A. Serial No. 6 of Schedule - II deals with two composite supplies as explained therein. If Art. 366(29A) (i.e. deemed sale) is to be ignored for GST, how can two defined supplies under said Serial No. 6 actually falls under the term 'Composite supply'? For composite supply, there has to be two or more supplies.

In other words, what was need of Serial No. 6 of Schedule - II (treating them as 'supply of Service) if Art. 366(29A) (i.e. deemed sale) is to be ignored for GST?

B. Does Serial No. 6 of Schedule - II means that all other composite-supplies which are not covered in entire Schedule - II (Such as issue under discussion here) and same needs to be decided as per Section 2 (30) read with Section 8 (a) of the CGST Act, 2017? If no, why not?

C. Does Serial No. 3 of Schedule - II covers 'Composite supply' involving transfer of title of goods from job-worker to the principal and yes, on what legal basis? And if yes, what is role of Serial No. 1 (a) of Schedule - II? If there is no role of Serial No. 1 (a) of Schedule - II, why not?

D. Art. 366(29A) deals with “tax on the sale or purchase of goods” where there is reference to "such transfer, delivery or supply of any goods" while Art. 366(12A) deals with " any tax on supply of goods, or services or both". Are they mutually exclusive? If yes, what is legal basis for it?

Lastly, kindly share your comments on first poser from my post at serial No. 5 above.

As explained above, please treat this as pure academic discussions and nothing beyond.

[Shilpi Jain]

The answer will also depend on the nature of material Y. Whether it is in the nature of a consumable or a minor portion for providing service Z.

However, there is another circular in the context of repair and maintenance of vehicle where they have clarified that the service portion and the goods portion can also be charged applicable taxes if the bifurcation of value is available. This though is not in line with the provisions of law pertaining to composite supply.