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Movement of goods to job workers is an essential business situation which occurs frequently. Many times a manufacturer send goods to a job worker for getting further work done on them, and receive the goods back from job worker or sell the goods directly from the place of job worker. In the existing regime, the value addition by the job worker is either taxable as manufacture or as taxable service, and in both cases, an exemption is granted to job worker in case, the principal manufacturer pays duty on the goods received after job work including the value addition. Presently the concept of taxation of the goods sent to a job worker is used in central laws, namely central excise and service tax. It is not used in VAT laws. In GST Act, the same concept has been adopted.

2. Concept of Job Work:

2.1 Section 2(62) of the Act provides that "job work" means undertaking any treatment or process by a person on goods belonging to another registered taxable person and the expression "job worker" shall be construed accordingly.

This definition is much wider than the one given in Notification No. 214/86 – CE dated 23rd March, 1986 as amended, wherein job work has been defined in such a manner so as to ensure that the "activity of job work must amount to manufacture". Thus the definition of job work itself reflects the change in basic scheme of taxation relating to job work in the proposed regime.

If we analyze the definition of Job work under the ACT we have the following

1. The Goods sent to job worker who is not registered under the GST regime, and the goods are sent to him for processing.

2. If some additional material is used by the job worker for processing /treatment, it shall amount to supply of goods back from Job worker to Principal.

3. As opposed to Notification 214/86- CE the job has been defined so as to amount to manufacture, this requirement is not there in ACT 2016 for Job worker.

3. Concept of supply:

3.1 As the incidence of supply attracts GST, the first question is whether the goods sent by the principal to a job worker is a supply of goods or not. In this regard, Para 5 of Schedule I of the ACT states "that the supply of goods and/or services by a taxable person to another taxable or non-taxable person in the course of furtherance of business shall be treated as supply without consideration" However, the proviso to the said para carves out a distinction in case of supply of goods for job-work by a registered taxable person to a job-worker in terms of section 43A of the ACT. The proviso clearly spells out that the supply of goods by a registered taxable person (principal) to job worker shall not be regarded as supply of goods. Therefore, it can be inferred that no GST shall be applicable on the goods supplied by the registered principal to a job worker. This position is same as is prevalent in the present law.

3.2 Section 43A of the ACT provides that the registered taxable person (principal) can send the taxable goods to a job worker for job work without payment of tax. He can further send the goods from one job worker to another job worker and so on. The principal can bring back such goods, after completion of job work, for supply from his own place of business either on payment of tax within India or the goods can be cleared for exports with or without payment of tax. The principal need not bring back the goods to his place of business and he can supply such goods from the place of business of job worker itself provided the principal has declared the premises of job worker as his additional place of business. The goods can be supplied directly from the place of business of job worker without declaring it as additional place of business in two circumstances namely where the job worker is a registered taxable person or where the principal is engaged in supply of such goods as may be notified in this behalf.

3.3 Explanation 2 to para 1 of Schedule-III also provides that the supply of goods, after completion of job-work, by a registered job-worker shall be treated as the supply of goods by the principal and the value of such goods shall not be included in the aggregate turnover of the registered job worker.

4. Position of Input Credit in respect of the goods sent to job worker:

4.1 In the Central Excise Law, since duty is payable at the time of removal of goods from the factory of the manufacturer, the incidence of sending goods to job worker which involves removal of goods from the manufacturer' s factory has been specifically noted and its tax position has been specifically carved out.

However, the input credit position and duty payment position at the time of removal of goods from the factory are inter-twined because of the fact that the reversal of respective credit on account of removal of goods practically amounts to payment of duty on such removal.

4.2 In the ACT, aspects relating to taking input tax credit in respect of inputs/capital goods sent for job-work have been specifically dealt in Section 16A, which provides that the credit of taxes paid on inputs or capital goods can be taken in the following manner:

1. Principal shall be entitled to take credit of inputs sent to a job-worker if the said inputs, after completion of job work are received back in 180 days from the date of being sent out. In case the inputs are sent directly to the job worker, the date shall be counted from the date of receipt of inputs by job-worker. "Further the credit has to be reversed, with interest, in case the inputs are not received back within the specified time". The credit can be reclaimed when the inputs are actually received back.

2. Principal shall be entitled to take credit of capital goods sent to a job-worker if the said capital goods, after completion of job-work are received back in 2 years from the date of being sent out. In case the capital goods are sent directly to the job-worker, the date shall be counted from the date of receipt of capital goods by job-worker. Further the credit has to be reversed, with interest, in case the capital goods are not received back within the specified time. The credit can be reclaimed when the capital goods are actually received back.

4.3 This position is similar to the existing position as is obtaining in the CENVAT Credit Rules, 2004. The related existing provisions provide that when inputs are removed from factory to job worker, respective CENVAT credit is not to be reversed (or duty is not payable) at the time of removal; and in case such goods are received back in the factory within 180 days of removal, there is no need for any credit reversal or duty payment on this account. Similar provision exists for sending the capital goods to job worker if the goods are returned within 2 years of removal. In case, goods do not come back within the specified time frame of 180 days or 2 years, the respective credit on these goods has to be reversed (or duty to be paid equal to the amount of credit taken on them), and whenever the goods come back, the same credit can be taken again by the manufacturer.

5. Movement of goods from Job Worker' s place:

5.1 There could be three possible situations –

1. The goods sent from first job-worker to another job worker – the permission required to be taken from the Commissioner by special order.

2. After completion of job-work, "the Commissioner may allow" to bring back such goods without payment of tax to any place of business of the principal (as defined in section 2(75) of ACT), from where the goods will be finally supplied "on payment of tax within India or the goods may be exported with or without payment of tax".

3. After completion of job-work, "the Commissioner may allow" the registered taxable person to supply the goods directly to the customers from the place of job worker "on payment of tax within India or export the goods with or without payment of tax". This is allowed only when –

a. Either the job worker is registered taxable person under GST; or

b. The principal declares the place of business of job worker "as his additional place of business";

c. The goods supplied are "notified goods" where above conditions do not apply.

5.2 It may be noted that the provisions relating to „job work' are applicable only to taxable goods. In other words, these provisions are not applicable to exempted or nontaxable goods. The principal, if intends to send exempt / non-taxable goods for job work, can devise his own procedure for the same.

5.3 The responsibility for accountability of the goods sent for job work including payment of tax thereon shall always lie on the principal.

6.Position of Process under the Act:

6.1The word process is not defined. Hence it is necessary to take it' s literal meaning or meaning commonly understood. The literal meaning is nearly the same as commonly understood. As per Black' s Law Dictionary process is mode, method or operation whereby a result is produced.

"What is the treatment to those process which amounts to manufacture or are treatment or processes?"

6.2There are "n" of jobs which do not amount to manufacture yet are processes or treatment of goods belonging to other person. The provisions of Sec 43A of the model draft deals with Job work. It has put many restrictions on movement of goods for job work

To site a few Process by dry cleaners, Polishing of silver material, Carpenter working on plywood, book binding , Plumber for fittings etc.

7. Difficulties Implementing JOB WORK Provisions- Think Again

7.1Job work is one subject which will create great difficulties and problems for small tax payer which cannot be solved and will cause litigation. Manufacture, job-work, reseller will be irrelevant words under GST. Be it supply of goods or supply of service tax shall be payable on transaction value. It will make it simple and easy to understand in the unorganized sector.

7.2 For counting the threshold limit of 1.5 Crores without payment of excise, the clearances of goods returned back to Principal manufacturer are not counted so, when an unregistered person, returns back the goods, to the job worker under Notification No. 83/94-CE, these clearances do not form part of the threshold available to him under SSI exemption,

7.3 However, no such exclusion has been provided under the Model GST Law. It may look if the same is exempted under Section 43(1) (a), But NO these supplies are under the net of 1.5 Cr and counted for

the purpose of threshold exemption. Let us understand by example, if any unregistered job worker supplies material with job work, this shall be considrered his job work within the Threshold limit of 1.5 Crores. Now Threshold limit is fixed at 20 lacs by the council, for a job worker doing jobwork with material of say 15 Lacs of job work 6 lacs, his threshold limits gets fully utilised.

7.4 As it comes to our mind and we understand, job work exemption "is not available to an unregd principal manufacturer, and consequently shall be treated as supply". In the absence of any exclusion in threshold exemption, when the principal manufacturer supplies goods to the job worker for performing job work, the supplies gets counted under the total threshold amount for exemption. Now when the finished goods are cleared after their final processing at the end of job worker these supplies also gets counted under threshold limit. This ultimate results in erosion of threshold limit for the principal manufacturer, even though the total (value addition along with value of Raw materials) at job worker' s end is actually less than the threshold limit.

7.5 Currently, job work exemption is available on self-declaration by the Principal to the Assistant Commissioner having jurisdiction over the job worker. Earlier before this self-declaration, the exemption was available through permission only. Section 43A however, has again put the hassle of taking permission from the Commissioner.

7.6 Thus the connection of process or treatment as expianed in Para 6 above to manufacture will not be essential characteristic of Job work under GST. It will be applicable to all transactions in the nature of undertaking any treatment of process for all persons including those who are not manufacturers like traders, service providers, works contractors etc.

7.7 Interest Burden in case goods are not received within time: The provisions are pretty much similar to provisions under Rule 4(5) of Cenvat credit rules, 2004. However, there is one difference which says that reversal of ITC on expiration of specified period have to be done along with Interest. Refer Para 4 aboveThe interest provision in current law is guided by Rule 14, which says that interest has to be paid only if the cenvat utilization exceeds cenvat availment. Matching concept operate under the GST Law, so say good bye to utilization and availment.

The author can also be reached at sanjayaggarwal2006@gmail.com.

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sanjay aggarwal
Category GST   Report

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