GST for Job Work and Outsourced Manufacturing Services: A Complete Guide
Job work services are required by almost every major industry whether it’s textile or any other industry. Further, there has been an increasing trend of outsourcing the manufacturing as well as other verticals of the business so that the business is able to concentrate on its core competencies. However, when we talk about their GST implications, both job work and outsourced manufacturing services are chargeable to GST. Let’s understand the GST implications on job work services as well as outsourced manufacturing services.
GST Implication on Job Work Services
Section 2(68) of the CGST Act defines job work as ‘any treatment or process undertaken by a person on goods belonging to another registered person’. The person performing the job work is known as the job worker whereas the person on whose goods the treatment or process is undertaken is known as the principal.
The job worker shall be liable to obtain registration under GST if his aggregate turnover during the financial year exceeds Rs. 20 lakhs (Rs. 10 lakhs in special category states). Let’s take a quick look at other important GST provisions applicable to job work services:
The principal can send goods to job workers without payment of tax:
One of the most prominent questions : is GST applicable on goods sent for job work?
A principal can:
- Send goods to a job worker
- Send goods from that job worker to another job worker
- Bring back goods to his place of business after completion of job work or send the goods directly from the job worker’s premises to the customer
without the payment of tax.
Further, the principal can directly send the goods from his supplier’s place of business to the job worker’s premises and avail of the ITC on the same. However, the inputs or capital goods (other than moulds and dies, jigs and fixtures or tools) shall be returned to the principal within 1 year and 3 years respectively from the date on which they were sent to the job worker.
The above time limit of 1 year or 3 years can be extended by the Commissioner for a further period of 1 year (for inputs) and 2 years (capital goods) respectively upon sufficient cause being shown. Further, the condition of return of goods within 1 year and 3 years is not applicable for moulds and dies, jigs and fixtures or tools sent to the job worker.
If the goods are not received back in time, then it shall be deemed as supply by the principal to the job worker from the day on which the goods were originally sent to the job worker. Consequently, the principal shall be liable to pay tax along with the interest on such deemed supply. In case the job worker eventually returns the goods, then it shall be deemed as supply by the job worker to the principal.
Additional Place of Business:
If the principal is supplying goods directly from the job worker’s premises to his customer, then he can do so by declaring the job worker’s premises as his additional place of business. However, this condition shall not be applicable if:
- The job worker is already registered under GST as per Section 25 of the CGST act or
- The principal supplying the notified goods
The goods shall be sent under the cover of a delivery challan containing all the specified details. Even if the inputs or capital goods are sent directly from the supplier’s premises to the job worker, a delivery challan shall be issued. Further, it shall be the responsibility of the principal to maintain proper accounts and details for inputs and capital goods sent to the job worker. The delivery challan shall be prepared in triplicate. Two copies of the challan shall be sent to the job worker along with the goods. While returning the goods, the job worker shall send one copy back to the principal.
In case the goods are sent by one job worker to another job worker, then either the principal or the job worker shall issue the delivery challan. Alternatively, the delivery challan given by the principal to the job worker can be endorsed to the other job worker. However, in case the goods are returned to the principal or sent to another job worker in lots or piecemeal by the original job worker, then the original challan cannot be endorsed and a fresh delivery challan shall be issued by the job worker.
Intimation to the Officer:
The principal shall provide the details of all the delivery challans relating to the goods sent to the job worker, from one job worker to another and back to the principal during the quarter by filing Form ITC-04 on or before the 25th of the month immediately succeeding such quarter.
In the case of job work, the e-way bill shall be generated by the principal or the job worker irrespective of the value of goods if the principal and job worker are located in different states or union territories. Further, if the job worker is unregistered, then the principal shall be responsible for the generation of the e-way bill.
GST Implication on Outsourced Manufacturing Services
Companies usually tend to outsource the manufacturing portions whether wholly or partially. In most cases, the manufacturing services are performed on the goods provided by the company and therefore, consideration is charged for the manufacturing service element instead of the value of goods. In other cases, the manufacturer may purchase the materials, perform the manufacturing and provide the finished goods to the company. In such a case, it is more of a supply of goods than the provision of service. In any case, the arrangement entered between the company and the manufacturer shall determine the implication of GST.
Above were explicit provisions of GST on job work services and outsourced manufacturing services. The GST rate applicable on the provision of services is 18% unless otherwise specified. In case of any query in relation to GST on job work or outsourced manufacturing services, feel free to contact your eAuditors.
Author : Dipen
Date : 02-Sep-2022