Job Work Under GST Regime: Statutory and Financial Implications
What is Job Work?
General Definition:
Job work means processing or working on raw materials or semi-finished goods supplied by the principal to the job worker. This is to complete a part or whole of the process which results in the manufacture or finishing of an article or any other essential operation.
As per the GST Act:
Section 2(68) stated that job work means any treatment or process undertaken by a person on goods belonging to another registered person. The person doing the job work is called a job worker.
Parties Involved?
Principal:
The registered person to whom these goods belong is called ‘Principal’ or Manufacturer. He is the real owner of the goods. The ownership of the goods does not transfer to the job-worker but it rests with the principal.
Job Worker / Agent:
A job worker is a person who is treating or processing the goods belonging to another person. The job worker is required to carry out the process specified by the owner on the goods.
How Material be move between parties?
Vide Challan:
- Every goods movement accompanied by a challan.
- The challan will be issued by the principal.
- Either for the inputs or capital goods.
- The details of challans must be shown in FORM GSTR-1 and GST ITC – 04
Content of challan:
- Date and number of the delivery challan
- Name, address, and GSTIN of the consigner and consignee
- HSN code, description, and quantity of goods
- Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately
- Place of supply and signature.
(It should not be treated as Tax Invoice)
Important Compliance w.r.t. movement of goods?
The goods sent must be received back by the principal within the following period:
- Capital Goods- 3 years
- Input Goods- 1 year
If the goods are not returned back within the specified time, the GST will be levied on such supply retrospectively
However, this condition does not apply to molds and dies, jigs and fixtures or tools sent to a job worker for job work}
If this condition failed, then Delivery challan issued at the time of movement of goods shall be treated as Deemed invoice and such supply shall be treated as Deemed Taxable Supply)
Financial Implications?
The process of job work contains only an inventory movement, thus it does not affect the purchase and/or sale of the company.
The expense charged by the job worker and other overheads costs incurred during the job work process shall be added to the cost of Finished Goods
Goods lying with job worker at reporting date shall be disclosed separately and the same has been valued as follows:
- Raw Material – Cost
- Finished Good – Cost or NRV whichever is lower
- Work In Process – At cost plus allocated expense to the extent of completion of the process as declared by the job worker
Other Points
Intimation to be sent to the GST department vide normal application to convey that we are indulging in the Job work process.
Stock godown is created in ERP for Goods OUT and IN movement. It is also required for tracking and reporting purposes.
It is Only an inventory movement, the sale, and purchase of the organization not be affected.
Job worker will intimate the quantity of scrap, if scrap will be sold either by Job worker or by the principal or dispose of, GST will be levy on principal and invoice be raised by the principal accordingly.
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