Central Tax Circulars

CGST Circular 38/2018

To,

The Principal Chief Commissioners/Chief Commissioners/Principal
Commissioners/Commissioners of Central Tax (All)/The Principal Directors
General/ Directors General (All)

Madam/Sir,

Subject: Clarification on issues related to Job Work

1) Various representations have been received regarding the procedures
to be followed for sending goods for job work and the related compliance
requirements for the principal and the job worker. In view of the
difficulties being faced by the taxpayers and to ensure uniformity in the
implementation of the provisions of the law across the field formations, the
Board, in exercise of its powers conferred under section 168 (1) of the
Central Goods and Services Tax Act, 2017, (hereinafter referred
to as the “CGST Act”) hereby clarifies the various issues raised as below:

2) As per clause (68) of section 2 of the CGST Act, 2017,
“job work” means
any treatment or process undertaken by a person on goods belonging to
another registered person and the expression “job worker” shall be construed
accordingly. The registered person on whose goods (inputs or capital goods)
job work is performed is called the “Principal” for the purposes of section
143 of the CGST Act. The said section which encapsulates the
provisions related to job work, provides that the registered principal may,
without payment of tax, send inputs or capital goods to a job worker for job
work and, if required, from there subsequently to another job worker and so
on. Subsequently, on completion of the job work (by the last job worker),
the principal shall either bring back the goods to his place of business or
supply (including export) the same directly from the place of
business/premises of the job worker within one year in case of inputs or
within three years in case of capital goods (except moulds and dies, jigs
and fixtures or tools).

3) It may be noted that the responsibility of keeping proper accounts
of
the inputs and capital goods sent for job work lies with the principal.
Moreover, if the time frame of one year / three years for bringing back or
further supplying the inputs / capital goods is not adhered to, the activity
of sending the goods for job work shall be deemed to be a supply by the
principal on the day when the said inputs / capital goods were sent out by
him. Thus, essentially, sending goods for job work is not a supply as such,
but it acquires the character of supply only when the inputs/capital goods
sent for job work are neither received back by the principal nor supplied
further by the principal from the place of business / premises of the job
worker within one/three years of being sent out. It may be noted that the
responsibility for sending the goods for job work as well as bringing them
back or supplying them has been cast on the principal.

4) With respect to the above legal requirements, various issues have
been raised on the following aspects:

a. Scope / ambit of job work;

b. Requirement of registration for a principal / job worker;

c. Supply of goods by the principal from the job worker’s place of
business / premises;

d. Movement of goods from the principal to the job worker and the
documents and intimation required therefor;

e. Liability to issue invoice, determination of place of supply and
payment of GST; and

f. Availability of input tax credit to the principal and the job
worker.

5) Scope/ambit of job work: Doubts have been raised on the scope of
job work and whether any inputs, other than the goods provided by the
principal, can be used by the job worker for providing the services of job
work. It may be noted that the definition of job work, as contained in
clause (68) of section 2 of the CGST Act, entails that the job work is a
treatment or process undertaken by a person on goods belonging to
another registered person. Thus, the job worker is expected to work on
the goods sent by the principal and whether the activity is covered within
the scope of job work or not would have to be determined on the basis of
facts and circumstances of each case. Further, it is clarified that the job
worker, in addition to the goods received from the principal, can use his
own goods for providing the services of job work.

6) Requirement of registration for the principal/ job worker: It is
important to note that the provisions of section 143 of the CGST Act are
applicable to a registered person. Thus, it is only a registered person who
can send the goods for job work under the said provisions. It may also be
noted that the registered person (principal) is not obligated to follow the
said provisions. It is his choice whether or not to avail or not to avail of
the benefit of these special provisions.

6.1 Doubts have been raised about the requirement of obtaining
registration by job workers when they are located in the same State where
the principal is located or when they are located in a State different from
that of the principal. It may be noted that the job worker is required to
obtain registration only if his aggregate turnover, to be computed on all
India basis, in a financial year exceeds the specified threshold limit (i.e.
Rs 20 lakhs or Rs. 10 lakhs in case of special category States except Jammu
& Kashmir) in case both the principal and the job worker are located in the
same State. Where the principal and the job worker are located in different
States, the requirement for registration flows from clause (i) of section 24
of the CGST Act which provides for compulsory registration of suppliers
making any inter-State supply of services. However, exemption from
registration has been granted in case the aggregate turnover of the
interState supply of taxable services does not exceed Rs 20 lakhs or Rs. 10
lakhs in case of special category States except Jammu & Kashmir in a
financial year vide notification No. 10/2017 – Integrated Tax dated
13.10.2017. Therefore, it is clarified that a job worker is required to
obtain registration only in cases where his aggregate turnover, to be
computed on all India basis, in a financial year exceeds the threshold limit
regardless of whether the principal and the job worker are located in the
same State or in different States.

7) Supply of goods by the principal from job worker’s place of business
/ premises:

Doubts have been raised as to whether the principal can supply goods
directly from the job worker’s place of business / premises to its end
customer and if yes, whether the supply will be regarded as having been made
by the principal or by the job worker. It is clarified that the supply of
goods by the principal from the place of business / premises of the job
worker will be regarded as supply by the principal and not by the job worker
as specified in section 143(1)(a) of the CGST Act.

8) Movement of goods from the principal to the job worker and the
documents and intimation required therefor:

8.1 Issues: Doubts have been raised about the documents required to
be
issued for sending the goods (i) by the principal to the job worker, (ii)
from one job worker to another job worker; and (iii) from the job worker
back to the principal.

8.2 Legal provisions: Section 143 of the CGST Act provides that the
principal may send and/or bring back inputs/capital goods for job work
without payment of tax, under intimation to the proper officer and subject
to the prescribed conditions. Rule 45 of the CGST Rules provides that the
inputs, semi-finished goods or capital goods being sent for job work
(including that being sent from one job worker to another job worker for
further job work or those being sent directly to a job worker) shall be sent
under the cover of a challan issued by the principal, containing the details
specified in rule 55 of the CGST Rules. This rule has been amended vide
notification No. 14/2018-Central tax dated 23.03.2018 to provide that a job
worker may endorse the challan issued by the principal. The principal is
also required to file FORM GST ITC-04 every quarter stating the said
details. Further, as per the provisions contained in rule 138 of the CGST
Rules, an e-way bill is required to be generated by every registered person
who causes movement of goods of consignment value exceeding fifty thousand
rupees even in cases where such movement is for reasons other than for
supply (e.g. in case of movement for job work). Further, the third proviso
to rule 138(1) of the CGST Rules provides that the e-way bill shall be
generated either by the principal or by the registered job worker
irrespective of the value of the consignment, where goods are sent by a
principal located in one State/Union territory to a job worker located in
any other State/ Union territory.

8.3 As mentioned above, rule 45 of the CGST Rules provides that inputs,
semi-finished goods or capital goods shall be sent to the job worker under
the cover of a challan issued by the principal, including in cases where
such goods are sent directly to a job worker. Further, rule 55 of the CGST
Rules provides that the consignor may issue a delivery challan containing
the prescribed particulars in case of transportation of goods for job work.
It may be noted that rule 45 provides for the issuance of a challan by the
principal whereas rule 55 provides that the consignor may issue the delivery
challan. It is also important to note that as per the provisions contained
in rule 138 of the CGST Rules, an e-way bill is required to be generated by
every registered person who causes movement of goods of consignment value
exceeding fifty thousand rupees even in cases where such movement is for
reasons other than for supply (e.g. in case of movement for job work). The
third proviso to rule 138(1) of the CGST Rules provides that the e-way bill
shall be generated either by the principal or by the registered job worker
irrespective of the value of the consignment, where goods are sent by a
principal located in one State/Union territory to a job worker located in
any other State/ Union territory. It may also be noted that as per
Explanation 1 to rule 138(3) of the CGST Rules, where the goods are supplied
by an unregistered supplier to a registered recipient, the movement shall be
said to be caused by such recipient if the recipient is known at the time of
commencement of the movement of goods. In other words, the e-way bill shall
be generated by the principal, wherever required, in case the job worker is
unregistered.

8.4 Clarification: On conjoint reading of the relevant legal
provisions, the
following is clarified with respect to the issuance of challan, furnishing
of intimation and other documentary requirements in this regard:

(i) Where goods are sent by principal to only one job worker:
The principal shall prepare in triplicate, the challan in terms of rules 45
and 55 of the CGST Rules, for sending the goods to a job worker. Two copies
of the challan may be sent to the job worker along with the goods. The job
worker should send one copy of the said challan along with the goods, while
returning them to the principal. The FORM GST ITC-04 will serve as the
intimation as envisaged under section 143 of the CGST Act, 2017.

(ii) Where goods are sent from one job worker to another job
worker: In such cases, the goods may move under the cover of a challan
issued either by the principal or the job worker. In the alternative, the
challan issued by the principal may be endorsed by the job worker sending
the goods to another job worker, indicating therein the quantity and
description of goods being sent. The same process may be repeated for
subsequent movement of the goods to other job workers.

(iii) Where the goods are returned to the principal by the job
worker: The job worker should send one copy of the challan received by
him from the principal while returning the goods to the principal after
carrying out the job work.

(iv) Where the goods are sent directly by the supplier to the job
worker: In this case, the goods may move from the place of business of
the supplier to the place of business/premises of the job worker with a copy
of the invoice issued by the supplier in the name of the buyer (i.e. the
principal) wherein the job worker’s name and address should also be
mentioned as the consignee, in terms of rule 46(o) of the CGST Rules. The
buyer (i.e., the principal) shall issue the challan under rule 45 of the
CGST Rules and send the same to the job worker directly in terms of para (i)
above. In case of import of goods by the principal which are then supplied
directly from the customs station of import, the goods may move from the
customs station of import to the place of business/premises of the job
worker with a copy of the Bill of Entry and the principal shall issue the
challan under rule 45 of the CGST Rules and send the same to the job worker
directly.

(v) Where goods are returned in piecemeal by the job worker:
In case the goods after carrying out the job work, are sent in piecemeal
quantities by a job worker to another job worker or to the principal, the
challan issued originally by the principal cannot be endorsed and a fresh
challan is required to be issued by the job worker.

(vi) Submission of intimation: Rule 45(3) of the CGST Rules
provides that the principal is required to furnish the details of challans
in respect of goods sent to a job worker or received from a job worker or
sent from one job worker to another job worker during a quarter in FORM
GST ITC-04 by the 25th day of the month succeeding the quarter or
within such period as may be extended by the Commissioner. It is clarified
that it is the responsibility of the principal to include the details of all
the challans relating to goods sent by him to one or more job worker or from
one job worker to another and its return therefrom. The FORM GST ITC-04
will serve as the intimation as envisaged under section 143 of the CGST Act.

9) Liability to issue invoice, determination of place of supply and
payment of GST:

9.1 Issues: Doubts have been raised about the time, value and place
of
supply in the hands of principal or job worker as also about the issuance of
invoices by the principal or job worker, as the case may be, with regard to
the supply of goods from principal to the recipient from the job worker’s
place of business / premises and the supply of services by the job worker.

9.2 Legal provisions: As mentioned earlier, section 143 of the CGST
Act
provides that the inputs/capital goods may be sent for job work without
payment of tax and unless they are brought back by the principal, or
supplied from the place of business / premises of the job worker within a
period of one / three years, as the case may be, it would be deemed that
such inputs or capital goods (other than moulds and dies, jigs and fixtures
or tools) have been supplied by the principal to the job worker on the day
when the said inputs or capital goods were sent out. Further, the job worker
is liable to pay GST on the supply of job work services.

9.3 The provisions relating to time of supply are contained in sections
12
and 13 of the CGST Act and that for determining the value of supply are in
section 15 of the CGST Act. The provisions relating to place of supply are
contained in section 10 of the IGST Act, 2017. Further, the provisions
relating to the issuance of an invoice are contained in section 31 of the
CGST Act read with rule 46 of the CGST Rules.

9.4 On conjoint reading of all the provisions, the following is clarified
with
respect to the issuance of an invoice, time of supply and value of supply:

(i) Supply of job work services: The job worker, as a
supplier of
services, is liable to pay GST if he is liable to be registered. He shall
issue an invoice at the time of supply of the services as determined in
terms of section 13 read with section 31 of the CGST Act. The value of
services would be determined in terms of section 15 of the CGST Act and
would include not only the service charges but also the value of any goods
or services used by him for supplying the job work services, if recovered
from the principal. Doubts have been raised whether the value of moulds and
dies, jigs and fixtures or tools which have been provided by the principal
to the job worker and have been used by the latter for providing job work
services would be included in the value of job work services. In this
regard, attention is invited to section 15 of the CGST Act which lays down
the principles for determining the value of any supply under GST.
Importantly, clause (b) of sub-section (2) of section 15 of the CGST Act
provides that any amount that the supplier is liable to pay in relation to
the supply but which has been incurred by the recipient will form part of
the valuation for that particular supply, provided it has not been included
in the price for such supply. Accordingly, it is clarified that the value of
such moulds and dies, jigs and fixtures or tools may not be included in the
value of job work services provided its value has been factored in the price
for the supply of such services by the job worker. It may be noted that if
the job worker is not registered, GST would be payable by the principal on
reverse charge basis in terms of the provisions contained in section 9(4) of
the CGST Act. However, the said provision has been kept in abeyance for the
time being.

(ii) Supply of goods by the principal from the place of business/
premises of job worker: Section 143 of the CGST Act provides that the
principal may supply, from the place of business / premises of a job worker,
inputs after completion of job work or otherwise or capital goods (other
than moulds and dies, jigs and fixtures or tools) within one year or three
years respectively of their being sent out, on payment of tax within India,
or with or without payment of tax for exports, as the case may be. This
facility is available to the principal only if he declares the job worker’s
place of business / premises as his additional place of business or if the
job worker is registered. Since the supply is being made by the principal,
it is clarified that the time, value and place of supply would have to be
determined in the hands of the principal irrespective of the location of the
job worker’s place of business/premises. Further, the invoice would have to
be issued by the principal. It is also clarified that in case of exports
directly from the job worker’s place of business/premises, the LUT or bond,
as the case may be, shall be executed by the principal.

Illustration: The principal is located in State A, the job
worker in
State B and the recipient in State C. In case the supply is made from the
job worker’s place of business / premises, the invoice will be issued by the
supplier (principal) located in State A to the recipient located in State C.
The said transaction will be an inter-State supply. In case the recipient is
also located in State A, it will be an intra-State supply.

(iii) Supply of waste and scrap generated during the job
work:
Sub – section (5) of Section 143 of the CGST Act provides that the waste and
scrap generated during the job work may be supplied by the registered job
worker directly from his place of business or by the principal in case the
job worker is not registered. The principles enunciated in para (ii) above
would apply mutatis mutandis in this case.

9.5 Violation of conditions laid down in section 143: As per
the
provisions contained in section 143 of the CGST Act, if the inputs or
capital goods (other than moulds and dies, jigs and fixtures or tools) are
neither received back by the principal nor supplied from the job worker’s
place of business within the specified time period, the inputs or capital
goods (other than moulds and dies, jigs and fixtures or tools) would be
deemed to have been supplied by the principal to the job worker on the day
when such inputs or capital goods were sent out to the first job worker.

9.6 Thus, if the inputs or capital goods are neither returned nor
supplied from the job worker’s place of business / premises within the
specified time period, the principal would issue an invoice for the same and
declare such supplies in his return for that particular month in which the
time period of one year / three years has expired. The date of supply shall
be the date on which such inputs or capital goods were initially sent to the
job worker and interest for the intervening period shall also be payable on
the tax. If such goods are returned by the job worker after the stipulated
time period, the same would be treated as a supply by the job worker to the
principal and the job worker would be liable to pay GST if he is liable for
registration in accordance with the provisions contained in the CGST Act
read with the rules made thereunder. It may be noted that if the job worker
is not registered, GST would be payable by the principal on reverse charge
basis in terms of the provisions contained in section 9(4) of the CGST Act.
However, the said provision has been kept in abeyance for the time being.
Further, there is no requirement of either returning back or supplying the
goods from the job worker’s place of business/premises as far as moulds and
dies, jigs and fixtures, or tools are concerned.

10) Availability of input tax credit to the principal and job worker:
Doubts have been raised regarding the availability of input tax credit
(ITC) to the principal in respect of inputs / capital goods that are
directly received by the job worker. Doubts have also been raised whether
the job worker is eligible for ITC in respect of inputs, etc. used by him in
supplying job work services. It is clarified that, in view of the provisions
contained in clause (b) of sub-section (2) of section 16 of the CGST Act,
the input tax credit would be available to the principal, irrespective of
the fact whether the inputs or capital goods are received by the principal
and then sent to the job worker for processing, etc. or whether they are
directly received at the job worker’s place of business/premises, without
being brought to the premises of the principal. It is also clarified that
the job worker is also eligible to avail ITC on inputs, etc. used by him in
supplying the job work services if he is registered.

11) It is requested that suitable trade notices may be issued to
publicize
the contents of this circular.

12) Difficulty, if any, in implementation of the above instructions
may
please be brought to the notice of the Board. Hindi version would follow.