Understanding Input Tax Credit and ITC-04 Procedures for Job Work under GST

This article delves into the Goods and Services Tax (GST) implications and Input Tax Credit (ITC) aspects for goods supplied for job work.

Important Updates: September 24, 2021 Effective October 1, 2021, the filing frequency for Form ITC-04 has been updated through Central Tax notification number 35/2021. The revised schedule is as follows:

For taxpayers with an Annual Aggregate Turnover (AATO) exceeding Rs. 5 crore: Half-yearly filing for April-September (due by October 25) and October-March (due by April 25).

For taxpayers with an AATO up to Rs. 5 crore: Yearly filing for Financial Year 2021-22 onwards (due by April 25).

What Constitutes Job Work?

Job work refers to the process where a job worker performs treatment or operations on raw materials or semi-finished goods provided by a principal manufacturer. This activity aims to complete a portion or the entirety of a manufacturing process, or any other essential operation, leading to the creation or finishing of an article. For instance, a large shoe manufacturer (the principal) might send partially assembled shoes (e.g., the upper parts) to smaller manufacturers (job workers) to attach the soles.

Upon completion, the job workers return the finished shoes to the principal manufacturer. Under the GST Act, job work specifically denotes any treatment or process undertaken by one person on goods belonging to another registered person. The individual or entity performing these services is known as a job worker.

Input Tax Credit Provisions for Job Work

Principal manufacturers are eligible to claim Input Tax Credit (ITC) on taxes paid for goods acquired and then dispatched for job work. However, certain conditions must be satisfied to avail this credit.

Location of Business

When goods are sent for job work, the principal's place of business plays a role in determining the effective date for compliance.

Commencement Date

The effective date marks the starting point for calculating various time limits related to job work processes under GST.

Time Limit for Receiving Goods Back

Yes, there is a specific timeframe within which the principal manufacturer must retrieve the goods after they have been sent for job work:

Capital Goods: Must be received within three years from the effective date.
Input Goods: Must be received within one year from the effective date.

Consequences of Not Receiving Goods Within the Stipulated Time

Should the goods not be returned within the prescribed periods, they will be considered as a supply from the effective date. In such scenarios, the principal manufacturer is obligated to pay tax on this deemed supply. The challan issued for dispatch will then be treated as an invoice for this supply.

Direct Sales from a Job Worker's Premises

A principal manufacturer can sell goods directly from a job worker’s place of business, provided the principal declares this location as an additional place of business. This requirement does not apply in two specific situations:

When the job worker is a registered entity.
When the principal supplies goods that the Commissioner has specifically notified as permissible for direct sale from the job worker’s premises.

Machinery Sent to Job Workers

Time limitations for returning goods do not apply to specific items like moulds, dies, jigs, fixtures, or tools that are sent to a job worker for the purpose of carrying out the job work.

Overview of ITC Claim Conditions for Job Work Goods

Here is a summary of the prerequisites for claiming ITC on goods sent for job work:

Goods Dispatch Options: Goods can be dispatched to a job worker either from the principal's primary place of business or directly from the supplier's location where such goods were purchased. ITC is permissible in both instances.
Effective Date for Dispatch: The effective date for goods sent depends on the dispatch origin:
- If sent from the principal's place of business, the effective date is the date the goods were sent out.
- If sent directly from the supplier's place of supply, the effective date is the date of receipt by the job worker.
Return Timeline: The principal manufacturer must ensure the goods are returned within these timeframes:
- Capital Goods: Within three years.
- Input Goods: Within one year.
Tax Liability for Non-Return: If goods are not received back within the aforementioned periods, they are treated as a supply from the effective date, and tax becomes payable.

Specific Provisions for Job Workers and Filing

If a job worker dispatches goods to another job worker, the same conditions apply as if the principal manufacturer were sending the goods. Therefore, the initial job worker can endorse the challan issued by the principal, indicating the quantity and description of goods when forwarding them to a subsequent job worker. Furthermore, job workers are required to file GSTR-1 and GSTR-3B, similar to any other taxpayer.

Understanding Form ITC-04

Form GST ITC-04 must be filed quarterly by the principal. It requires details of challans related to:

Goods dispatched to a job worker.
Goods received back from a job worker.
Goods transferred from one job worker to another.

Due Dates for Form GST ITC-04

Prior to October 2021, ITC-04 was a quarterly form, due by the 25th day of the month following the quarter (e.g., October 25 for the July-September quarter).

However, with effect from October 1, 2021, the filing frequency has been revised to half-yearly and yearly:

For businesses with an annual aggregate turnover exceeding Rs. 5 crore: Half-yearly filing for April-September (due by October 25) and October-March (due by April 25).
For businesses with an annual aggregate turnover up to Rs. 5 crore: Yearly filing for FY 2021-22 onwards (due by April 25).

Required Information in ITC-04

Form ITC-04 consists of two main sections:

Details of goods sent to a job worker.
Details of goods received back from a job worker.

Input/Capital Goods Sent for Job Work

This section requires various details, including the GSTIN, challan number, and tax amount, all of which are sourced from the relevant challans.

Goods Received Back or Dispatched from Job Worker's Place

This section details goods that have been returned. Goods might be received back by the principal or sent directly to another job worker from the initial job worker’s premises. All particulars of the original and any new challans must be provided.

How to File ITC-04 on the GST Portal

Here is a step-by-step guide for filing ITC-04 through the GST portal:

Log In: Access the official GST Portal using your credentials.
Navigate to Returns: Go to "Services" >> "Returns" >> "ITC Forms".
Prepare Offline: Select the "Prepare Offline" option and upload the necessary invoice details.
Initiate Filing: After uploading invoices, click "Initiate Filing".
Select Tax Period: Choose the appropriate tax period for which you are filing.
Review Details: Verify the taxable amount and other provided information.
Final Submission: Submit the return using either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC), as applicable.

The government has allotted a reasonable timeframe for job workers to return goods to the principal. GST provisions enhance transparency regarding input tax credit on goods transferred for job work.

For additional information, consider exploring:

GST impact on job work
Input tax credit provisions