Input Tax Credit on Job Work

What is Job Work?

Job work is any treatment or processing an individual performs on goods belonging to another registered person. The owner of the goods is known as the principal. The job worker must carry out the process as advised by the principal.

Time constraints for returning the processed goods to the owner

Within a year, beginning on the date of receipt, the Principal must receive the inputs supplied for the job work. There is a three-year time limit on returning the processed goods to the owner when processing capital goods.

When goods are not received within the time frame specified above, they are considered to have been supplied as of the effective date. The principal will pay the tax on this deemed supply. The issued challan will be regarded as an invoice for that supply.

Responsibilities under the Principal

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

1. As in rule 10 of the invoices under GST, the Principal issues the challan to the job worker for the goods.

2. The principal needs to maintain an account of inputs and capital goods.

3. The principal needs to inform the relevant official of the expected input goods and the type of processing the job worker provides.

4. 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.

Input Tax Credit on Job Work

According to the CGST Act, the Principal is liable for paying the input tax on capital goods or inputs supplied to the job worker for processing. Input tax paid on such commodities is intended to be credited to the Principal.

If the commodities are sent directly to the job worker without being brought to the business's premises, the owner is compensated for asking for credit before the inputs arrive.

Conditions for claiming ITC on goods supplied for Job Work

Some of the conditions required for claiming ITC on goods supplied for Job Work 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 GST ITC - 4 must be used to claim information regarding input and capital products sent to the job worker.

Transitional Provisions for Job Work under CGST

Transitional provisions determine whether or not the goods and services being processed or not processed before or on the designated day of GST are subject to GST coverage.

• According to Section 19 of the CGST Act, 2017[1], the person providing the job worker with taxable products for further processing can claim the input tax credits for the inputs used in the job work.

• Per the additional provision to the clause, as mentioned earlier, the principal is nevertheless permitted to claim a credit for input taxes paid even if the goods are delivered directly to the job worker for additional processing.

• Due to this, the principal can claim input credit without carrying the goods to his premises.

• Timeframe for Processed Goods Returns:

  • Capital items delivered to the employee must return to the principal within three years of delivery.

  • The inputs given to the job worker for additional processing must be returned within a year of being sent.

ITC-04 Form

ITC-04 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, and sent from one person to another (job worker).

It must be submitted by the 25th of the month after the quarter. Two sections of the information must be provided: goods sent to the job worker and goods received from the job worker.

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.

Conclusion

As a result, under GST, the 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.

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