Job-work transactions under model GST law

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Customer Care No. 91-11-45562222
Job-work transactions under model GST law
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•  In today's scenario, where the demand for goods
  and services is increasing at a rapid pace, a
  large number of industries as a part of their
  survival strategy are dependent on outside
  support for completing their manufacturing
  activities. Such activities are being undertaken
  by many small and medium scale industries to
  complete the process on raw material/semi-finished
  goods as desired by principal manufacturer and
  is known as "Job-Work". Job-work is otherwise
  also understood as the processing or working on
  goods supplied by the principal (i.e. the
  manufacturer) so as to complete a part or whole
  of the process. The principal usually sends the
  raw material or semi-finished goods or components
  which are processed by the job worker resulting
  in a further processed or finished product. The
  manufacturer may also send finished product to a
  job worker for assembling/packing. The term
  job-work has various synonyms in various
  industries "job-work" or "sub-contracting" in
  engineering industry, "processing" in chemical or
  textile industry and "a loan licensee" in
  pharmaceutical industry, "contract manufacturing"
  in FMGC industry.

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• This being the commercial aspects of the entire
  transaction, the Indirect tax aspects broadly
  revolves around Central Excise Duty, Service tax
  and Value Added Tax/Central Sales Tax. The
  taxable events for all three taxes are different
  i.e. for Central Excise duty it is upon
  manufacture of goods, for Service tax it is
  rendition of service and for Value Added
  Tax/Central Sales Tax it is sale of goods.
• Central Excise duty, being a duty leviable on
  manufacture of goods, the liability shall arise
  only in case of 'manufacture', in terms of the
  provisions of Central Excise Act, 1944, is taking
  place out of the activities undertaken by the
  job-worker. However, in case the principal files
  a declaration in terms Notification 214/86-CE
  (NT) dated March 25, 1986, exemption shall be
  available to the job-worker from payment of duty.
  Where the process undertaken by the job-worker
  does not amount to manufacture, service tax would
  be applicable on the said transaction. The
  payment of service tax by job-worker is exempted
  in terms of Notification No. 25/2012-ST dated
  June 20, 2012, provided the principal
  manufacturer makes payment of appropriate duty.
  Therefore, in order to determine the
  applicability of Central Excise duty and Service
  tax on the goods sent to job worker, various
  factors have to be kept in mind which includes
  the event of manufacture and payment of taxes by
  the principal manufacturer.

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• There shall also arise applicability of Value
  Added Tax/Central Sales Tax on the sale of any
  goods by the principal manufacturer of goods to
  job-worker. Generally, the goods sent
  within/outside the State for job-work are not
  sold by the principal to the job worker. In the
  absence of any sale element, the goods are sent
  along with a declaration stating that the goods
  are sent on job-work. Therefore, where the goods
  are sold and not just transferred for job-work,
  Value Added Tax/Central Sales Tax liability shall
  be applicable.
• With so many taxable events and various checks as
  regards applicability of Central Excise duty,
  Service tax and Value Added Tax/Central Sales Tax
  on the same transaction, Goods and Services Tax
  (GST) aims align the yardstick for determining
  the taxable event and thereby, levy single tax on
  such transaction. The amendments brought in the
  Constitution of India vide 122ndConstitution
  Amendment Bill which proposes to introduce GST as
  a uniform levy on supply of all goods and
  services across the country. Under GST, taxable
  event would be 'supply of goods/service' and not
  activities like 'manufacture', 'sale' or
  'provision of service'. The question in this
  regard that was being apprehended by the industry
  is that how would the job-work industry be
  impacted inasmuch as the applicability of GST is
  concerned. There was hue and cry among the
  industry on the applicability of GST on job-work
  transactions till the time model GST law was made
  online for public comments.

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• Concept of supply
• Let us first analyze that whether the goods sent
  by the principal to a job-worker is a supply of
  goods or not. In this regard, Entry 5 to Schedule
  I of the model GST law states that the supply of
  goods and/or services by a taxable person to
  another or non-taxable person in the course of
  furtherance of business shall be treated as
  supply without consideration. However, the
  proviso to the said entry 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. The proviso
  clearly spells out that the said transaction of
  supply of goods by principal to job worker shall
  not be regarded as supply of goods. Therefore,
  based on the model GST law, it can be inferred
  that no GST shall be applicable on the goods
  supplied by the principal to a job worker.
• Procedure for Job-work
• Besides, the procedure to be followed for
  job-work purposes has been specified in Section
  43A. It states that a registered taxable person
  can send taxable goods to a job worker for
  job-work subject to the approval of the
  Commissioner by way of a special order and
  subject to conditions as may be specified by him.
  The goods sent for job-work may be sent to
  another job worker and after completion of
  job-work, the Commissioner may allow to
• ? bring back such goods to any place of business
  of the principal without payment of tax for
  supply therefrom within India or with/without
  payment of taxes for export
• ? supply such goods from place of business of a
  job worker on payment of tax within India or
  with/without payment of taxes for export

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