When we hear the words “job” and “work”, we mostly think of the same thing – chores, task, labour and so on. Job work simply means processing of goods i.e. processing of inputs and converting the same into a new product.
It is important to note that these goods do not belong to the job worker but to the principal (manufacturer). The job worker has no ownership on the goods. The principal entity provides the goods to the job worker. The job worker processes the same and returns the final goods to the principal.
Job work is simply an outsourcing activities that may or may not amount to manufacturing.
According to CGST Act, 2017, “job work” means any treatment or process undertaken by a person on goods belonging to another registered person.
There are 2 parties to a job work contract:-
Job Worker: The person who is treating or processing the goods belonging to other person is called ‘job worker’.
PrincipalThe person to whom the goods belong to is called ‘principal’.
Some advantages of having a Company HR Leave Policy in place are:
The GST rate depends on the job work and therefore it can be bifurcated as Exempt under GST, 5% GST rate, 12% GST rate and 18% GST rate. This clearly states that the rate under Job work depends on the nature of job work. Few of them are listed below:
For Details about rate refer entry no 26 of of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017
Manufacturing services on physical inputs (goods) owned by others, other than mentioned under that of 5% GST rate
It is to be noted that,
A recent notification Circular No. 126/45/2019-GST, stated that entry at item (id) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28- 06-2017 inserted with effect from 01-10-2019 implemented to reduce rate of GST on all job work services, which earlier attracted 18 % rate, to 12%. Further it clarifies that the 12% GST rate for all services by way of job work, whereas the entry at item (iv) which covers “manufacturing services on physical inputs owned by others” would be with GST rate of 18%.
Description | Applicable GST rate |
---|---|
(id) Services by way of job work other than (i), (ia), (ib) and (ic) | 12% |
(iv) Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) | 18% |
In view of the above, it may be seen that there is a clear demarcation between scope of the entries at item (id) and item (iv) under heading 9988 of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017. Entry at item (id) covers only job work services as defined in section 2 (68) of CGST Act, 2017, that is, services by way of treatment or processing undertaken by a person on goods belonging to another registered person. On the other hand, the entry at item (iv) specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs (goods) which are owned by persons other than those registered under the CGST Act.
That means where the activity of job work is specifically excluded under entry 26- (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) of notification no. 11/2017-Central Tax (Rate) dated 28-06-2017
Nature of Goods | Time Limit |
---|---|
Inputs | 1 Year |
Capital Goods | 3 Years |
Moulds, dies, fixtures, jigs, tools etc | No time limit |
If the goods sent to the job worker are not returned within the specified time (1 yr / 3 yrs), then the ITC availed by the Principal will be recovered
Mostly, the supplier of goods or services is required to pay GST. RCM means that the liability to pay tax falls on the recipient of supply of goods or services, instead of the supplier.
Section 9(4) of CGST Act, 2017 provides that the tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis.
In simple words, if the job worker is not a registered person, then on the amount charged by him towards job work charges, principal needs to pay tax under RCM.
Situation | Is registration mandatory? |
---|---|
Job worker making inter-state taxable supply | yes |
i. aggregate turnover exceeds the prescribed threshold limit of Rs 20 lakhs (Rs 10 lakhs for special category states) | yes |
i. aggregate turnover exceeds the prescribed threshold limit of Rs 20 lakhs (Rs 10 lakhs for special category states) | No (job worker may take voluntary registration) |
After the job worker completes his process he may:-