What is classified as Job Work under GST?

Section 2(68) of the CGST Act 2017 defines job work. The definition is as follows:

“Any treatment or process undertaken by a person on goods belonging to another registered person.”

As such, a job worker is any person (registered / unregistered) who treats or processes the goods of another registered person. Goods in this context means either capital goods or inputs.

In simple words, job work means working on raw material or unfinished goods supplied by the principal manufacturer to the job worker. The job worker then completes the processing of the goods to produce a finished product or at least bring the goods to an intermediate state which the manufacturers can use to create the final sellable product.

In the first case, the provider of the raw material is the principal and the job workers take the material to fruition. In the latter case, the manufacturer who claims the intermediate product becomes the principal.

Who is a Principal in job work?

The person who owns the goods that the job workers processes is called as a Principal in a job work related transaction.

Section 19 of the CGST act, 2017 defines the Principal as ‘a person supplying goods to the job-worker.’

Role of the Principal

1. The Principal issues the challan (as specified in rule 10 of invoices rules under GST) to the job-worker for the inputs or capital goods
2. Maintaining the accounts of input and capital goods
3. Intimate the jurisdictional officer for the detailing of the intended inputs and the nature of the processing being delivered by the job-worker
4. Declare the premise of job-worker as additional place of his business in case of export the goods to the third party directly and the job-worker is not registered under GST.

Documents Involved

1. A challan represents the goods exchanged between the Principal and the Job Worker. As above, the principal issues the challan, even for the goods sent directly to the job worker.
2. When the goods are exchanged between two job workers, issuing the challan can be handled by the principal OR the job worker who provides the goods to another.
3. When the goods make the return trip (from job worker to principal, or from the receiving job worker to supplying job worker), the challan may be endorsed by the job worker, with the additional details of the quantity and description of goods.
4. If one job worker returns the goods such that the goods are damaged or mismanaged, the original challan cannot be endorsed. A fresh challan is required to be issued by the job worker.
5. Challan shall be issued as per the provisions under Rule 55 of the CGST Act. Rule 55 (2) requires to prepare the challan in triplicate. The following are the 3 copies of the challan:

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

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

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

Claiming Input Credit

Since the Principal is the provider of goods, he/she is responsible for paying the input tax on the goods for job work.

The law compensates principals for applying for ITC without waiting till the goods reach the premises, if the goods are sent directly to the job worker and not the premises. In that case, the ITC can be compensated before the processing of the goods start on the premises.

Applicability of ITC

Purchased Goods can be sent to the job worker in two possible ways:

• From Principal to the Place of Business (premises).
• Directly from the supplier’s Place of Supply of such goods.

In the above cases, ITC will be allowed.

Time Period for ITC

If:

• Goods were sent out from the principal place of business, or
• Goods were sent out directly from the place of supply

Then, the date of receiving by the job-worker is required.

Time period for the return trip from the job worker to the principal

• Capital Goods- 3 years
• Inputs- 1 year

If in case capital goods and inputs are not received within these periods, these goods will be considered as supply from the date of receiving and tax will be applicable on such supply. The challan issued will be considered as the invoice for such supply.

GST Rates for Job Work