Understanding Goods and Services Tax Provisions for Job Work Activities

This article examines the tax implications under the Goods and Services Tax (GST) for items dispatched for job work and subsequently returned, covering periods both before and after the GST implementation date.

Recent Updates

September 24, 2021: The frequency for filing Form ITC-04 has been revised, effective October 1, 2021, by Central Tax notification number 35/2021. Businesses with an Aggregate Annual Turnover (AATO) exceeding Rs. 5 crore must file half-yearly (April-September by October 25; October-March by April 25). Those with an AATO up to Rs. 5 crore are required to file annually for FY 2021-22 by April 25.

May 1, 2021: The deadline for filing ITC-04 for the January-March 2021 quarter was extended from April 25, 2021, to May 31, 2021.

Defining Job Work

Job work involves a process or treatment performed on raw materials or semi-finished goods that a principal manufacturer provides to a job worker. This operation constitutes a part or the entirety of the manufacturing or finishing process of an item, or any other necessary step. For instance, large shoe manufacturers (principals) might send partially completed shoes (the upper sections) to smaller manufacturers (job workers) to attach the soles. The job workers then return the completed shoes to the principal manufacturer. Under the GST Act, job work specifically refers to any treatment or process carried out by an individual on goods owned by another registered person. The person performing the job work is known as the job worker. It is important to note that the value of goods dispatched by the principal will not be included in the registered job worker's aggregate turnover.

Input Tax Credit for Goods Sent for Job Work

The principal manufacturer is eligible to claim input tax credit (ITC) on the taxes paid for acquiring goods that are subsequently sent for job work, subject to specific conditions.

Dispatch Locations

Goods can be sent to a job worker from two locations:

• From the principal's primary place of business.
• Directly from the supplier's place of supply for such goods.

ITC is permissible in both scenarios.

Determining the Effective Date

The effective date for goods dispatched is critical for tax purposes if they are not returned within the stipulated timeframe.

• If sent from the principal's business premises, the effective date is when the goods are sent out.
• If sent directly from the supplier's place of supply, the effective date is when the job worker receives the goods.

Time Limits for Return

The principal manufacturer must receive the goods back within the following periods:

• Capital Goods: Within 3 years.
• Input Goods: Within 1 year.

Consequences of Non-Return

Should the goods not be returned within the specified period, they will be considered as a supply from the effective date, and the principal will be liable to pay tax on them. For further details, refer to articles on Input Credit on Job Work and ITC-04.

Necessary Documentation

Accounting and Records

The principal bears the responsibility for maintaining accurate accounts for all inputs or capital goods involved in job work.

Delivery Challan

• All goods forwarded for job work must be accompanied by a delivery challan.
• The principal is responsible for issuing this challan.
• This requirement applies even if inputs or capital goods are sent directly to the job worker.
• The details from these challans must be reported in FORM GSTR-1.
• Challan information must also be submitted via Form GST ITC–04.

The delivery challan must include the following particulars:

• Date and number of the delivery challan.
• Name, address, and GSTIN of both the consigner and consignee.
• HSN code, description, and quantity of the goods.
• Taxable value, tax rate, and the individual tax amounts (CGST, SGST, IGST, UTGST).
• Place of supply and signature.

Form ITC-04 Submission

The principal must file FORM GST ITC-04 quarterly. This form requires reporting of challan details for:

• Goods dispatched to a job worker.
• Goods received from a job worker.
• Goods sent from one job worker to another.

The form must be submitted by the 25th day of the month following the quarter's end. For example, the due date for the October-December quarter is January 25. More information on ITC-04 is available.

Transitional Provisions

These provisions apply to items sent for job work before the implementation of GST and returned on or after the GST appointed date. No tax will be due if specific conditions are met:

• The goods are returned to the factory within six months from July 1st (i.e., by December 31, 2017), with a possible extension of up to two additional months.
• Goods held by the job worker are declared in Form TRAN-1.
• The principal manufacturer can only sell these job-worked items after remitting the necessary taxes (Excise & VAT if sold before GST; GST if sold after July 1, 2017). This rule does not apply to goods exported from India within six months (with a maximum two-month extension) from the appointed date.

If the goods are not returned within the prescribed timeframe, input tax credit will be recovered from the principal manufacturer.

FORM GST TRAN-1 Requirements

Both the job worker and the principal manufacturer are required to submit FORM GST TRAN-1, detailing the stock of inputs, semi-finished goods, or finished goods held by them or with the job worker on July 1, 2017. The original due date for this submission was November 30, 2017. Further guidance on TRAN-1 is available.

GST Rates Applicable to Job Work

For more information on Input Tax Credit on Job Work under GST and other input tax credit provisions, explore related articles.