Job work procedure, Goods and Services Tax - GST

[Anurag Chopra]

Hi All,

Facing a peculiar situation under GST (job work procedure), where the Company has sent some goods to job worker, but the job worker has now absconded and has refused to return the goods. The Company has filed a legal case. Further, the time period to get the goods back has also lapsed.

Wanted to check your suggestion, what should the Company do?

• Treat this as outward supply and pay GST on the same along with applicable interest (as per the GST provision u/s 143, 50, 19)
• Or can this be treated as Inventory w/off, destroyed and ITC reversals would serve the purpose.

In my view, GST should be paid on outward supplies, please suggest. Thanks.

Posts / Replies

[Asha Latha]

If the inputs sent for job work are not received back within a period of 1 year of their being sent out (or) not supplied directly from the place of business of job worker:

• 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 (as per Section 143(3) and Section 19(3) of the CGST Act, 2017).
  • Thereby, GST is required to be paid on such goods along with interest under Section 50 of the Act in the instant case. Writing off the inventory will not be allowed.
• Principal shall be entitled to take credit of ITC on inputs (as per Section 19(2) read with Section 16(2)(b) of the CGST Act, 2017).
  • Thereby, ITC could be availed on the date of sending such goods to job worker. However, ITC availment is subject to time limit provided u/s 16(4) of the Act).

Recommended Action: Pay GST on the deemed outward supply, along with applicable interest, and issue a tax invoice in compliance with GST provisions. ITC could be availed subject to time limit u/s 16(4) of the Act.

Hope this clarifies the issue!

[Bishal Gope]

These items were sent as part of a job work procedure and were meant to be returned, however in your case they were not returned within prescribed time limit (because of whatever reasons) as per sec 143, so they are being considered now as a deemed supply. So classifying those goods as write off/destroyed may not be justifiable. Safer approach would be to Pay output tax liability on such Outward Supply along with interest as per section 50.

[KASTURI SETHI]

The activity of sending the goods for job work is not supply but if the said inputs/goods are not received back the said activity takes the  character of outward supply. The principal is responsible for discharging tax liability and maintenance of the records. Hence the first option should be preferred to second option.

Sections 143 and 55 are very much clear.

Nothing will come out of second option but the burden of litigation. So not advisable. 

I support the replies of both experts.

[YAGAY andSUN]

This is indeed a complex situation under GST, and I understand the concern regarding the treatment of goods sent to a job worker who has now absconded and is refusing to return them. Let's analyze the available options based on the provisions of GST and your scenario.

1. Treatment of Goods as Outward Supply:

As per Section 143 of the GST Act, goods sent to a job worker are not considered an outward supply unless the goods are not returned within the prescribed time limit, as per the rules under Section 143(3)).

In your case, since the time limit to return the goods has lapsed, the following could happen:

• The goods would be considered as having been disposed of, which would likely trigger an outward supply under GST.
• The company would need to pay GST on the goods as if they have been sold or otherwise disposed of to the job worker.

Applicability of GST:

• Outward Supply: Since the goods are not being returned, the company may be required to treat the situation as an outward supply, which would require GST to be paid on the transaction value (similar to the sale of goods).
• GST Liability: The company would have to pay GST on the transaction value of the goods sent to the job worker (i.e., as though the goods were sold), and this would also attract interest on the GST payable, as per Section 50 of the GST Act, for the delayed payment.

Thus, under these circumstances, GST on outward supply is likely the correct approach in this case. The goods are effectively deemed to have been disposed of when the time for return has lapsed, and GST needs to be paid on the value of those goods along with applicable interest.

2. Treatment as Inventory Write-Off or Destruction:

Alternatively, you suggested the possibility of treating the goods as inventory write-off or destroyed, and then applying the ITC reversals. Here's why this may be problematic:

• Inventory Write-Off: If you treat the goods as a write-off or destruction, this would generally be applicable if the goods are physically destroyed or lost. However, in this case, the goods are still in the possession of the job worker, even though they have absconded. So, you cannot treat them as "destroyed" for GST purposes.
• ITC Reversal: If the goods are lost or destroyed, you may have to reverse the input tax credit (ITC) claimed on them. However, because the goods are not actually lost or destroyed (they are simply withheld by the job worker), this approach wouldn't seem to apply here.

Therefore, the write-off and ITC reversal route is not appropriate unless the goods have been physically destroyed, and this does not appear to be the case in your situation.

3. Legal Action & Recovery:

Since the company has filed a legal case to recover the goods, this will likely involve a legal process to establish ownership and recover the goods or their value. However, from a GST perspective, the obligation to pay tax on the outward supply arises as soon as the goods are considered disposed of or not returned in the prescribed time frame, irrespective of the legal case.

Conclusion:

• The correct approach would be to treat the goods as an outward supply and pay GST on the transaction value of the goods that were sent to the job worker. This is supported by Section 143(3) of the GST Act, which states that if the goods are not returned within the prescribed time, they will be treated as having been disposed of, triggering GST liability.
• Interest under Section 50 would also be applicable for the delay in payment.

The company should pay GST on the outward supply (considering the situation as if the goods were sold or disposed of) and then continue to pursue legal action for the recovery of the goods.

Once the goods are recovered (if that happens), the situation can be adjusted further, but for now, the tax liability is triggered as an outward supply, and the GST needs to be settled.

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