Input Tax Credit on Job Work Under GST

What is Job Work under GST?

When principal manufacturers send their semi-finished products to smaller manufacturers for finishing, it is known as job work according to Section 2(68) of the CGST Act. In such a scenario, the owner of the goods is known as the Principal, and the smaller company tasked with finishing up the goods is the Job Worker.

In simpler words, job work is any treatment or processing performed on goods belonging to another registered person. The job worker must carry out the process as advised by the Principal.

For example, ‘ABC Electronics’ produces electronic devices and contracts out the assembly process to a third-party company, ‘XYZ Manufacturing’.

ABC Electronics provides all the necessary components and instructions to XYZ Manufacturing to assemble the devices.

After the assembly is complete, the finished devices are returned to ABC Electronics for final testing and quality control.

Thus, according to the CGST Rules, 2017, the Principal is ABC Electronics, while XYZ Manufacturing is the Job Worker.

ABC Electronics is a registered business that has outsourced a specific process to XYZ Manufacturing, which is responsible for carrying out the assembly of the electronic devices.

This makes XYZ Manufacturing a Job Worker, as it has taken on the job from a registered business to complete a specific process in the production of electronic devices.

Responsibilities of the Principal

There are specific responsibilities that the Principal needs to undertake. These are:

• As in rule 10 of the invoices under GST, the Principal issues the challan to the job worker for the goods.
• The principal needs to maintain an account of inputs and capital goods.
• The principal needs to inform the relevant official of the expected input goods and the type of processing the job worker provides.
• In cases where goods are exported to a third party directly and the job worker is not registered for GST, the principal needs to declare the premise of the job worker as an additional place of business.

Conditions for Claiming ITC on Goods Supplied for Job Work

Some of the conditions required for claiming ITC on goods supplied for Job Work under GST are as follows:

1. Sending out inputs, semi-finished goods, or capital for job work:
   1. Products shipped from the primary location of the business
   2. Direct shipment of goods from the supplier’s point of supply
   3. Sending out products along with a challan is required.
2. The Challan should contain some specific points:
   1. Date and number of the delivery challan
   2. Name, address, and GSTIN of both the sender and the recipient
   3. Code, product description, and quantity for HSN
   4. Value subject to taxation, tax rate, and tax amount (CGST, SGST, IGST, and UTGST individually)
   5. Place of supply and signature
3. In the GSTR-1 form, the details of the challan should be displayed.
4. The ITC 04 in GST must be used to claim information regarding input and capital products sent to the job worker.

ITC 4 Form

ITC-04 under GST is a form that includes information on the inputs or capital items sent to and received from such a job worker. The registered principal who sends inputs or capital goods on the job must submit this form quarterly.

It must contain the information from the challans for the following:

• Items sent to a job worker;
• Items received from a job worker;
• Items sent from one job worker to another.

From 1st October 2021, ITC-04 form is required on a semi-annual or an annual basis, depending on the following criteria:

• Annual turnover greater than ₹5 crore – Semi-annually (by 25th October for April – September and 25th April for October – March)
• Annual turnover up to ₹5 crore – Annually (by 25th April)

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How to File ITC-04 Form

Given below are the steps to file the ITC- 04 form:

Step 1: Login to the GST Portal

Step 2: Navigate to Services > Returns > ITC Forms

Step 3: Go to the “Prepare Offline” Section and Upload Your Invoices

Step 4: After Uploading Invoices, Click on ‘Initiate Filing’

Step 5: Select the Tax Period

Step 6: Verify the Taxable Amount and Other Pertinent Details

Step 7: Submit the Return Using Either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC)

Return of Goods to the Principal

Returning goods to the principal is a crucial component of job labour. The principal expects to receive back any inputs or capital goods sent to a job worker within one year (in the case of inputs) and three years (in the case of capital goods) of the date the items were sent to the job worker.

Tools, jigs, and fixtures provided to the job worker by the principal are not subject to the provision for the return of goods. The principal would be responsible for paying GST on the sale of junk if the job worker did not have a GST registration, but the job worker would be responsible for paying GST when such moulds and dies, jigs and fixtures, or tools are disposed of as junk by the job worker. The failure to return input or capital items within the allotted period must be declared in Form GSTR-1. The principal is responsible for paying the tax due and any relevant interest.

Can the principal directly sell from the job worker’s place?

Yes, the principal can sell goods directly from the job worker’s location if the goods are taxable and permission from GST authorities is obtained. The goods remain under the principal’s ownership and are taxed accordingly when sold. The principal must declare the job worker’s premises as an additional place of business, unless the job worker is registered under GST.

Conclusion

As a result, GST on job worker is given a sizable window of time to return the items to the principal, which promotes transparency when claiming an input tax credit.Claiming ITC correctly requires a lot of compliance work and accurate records to be maintained. It is advisable to use powerful GST Software to help you claim ITC correctly by ensuring that your business is GST compliant.