Under the Goods and Services Tax (GST) Act 2017, the principal (a person supplying taxable goods to the job worker) is entitled to claim input tax credit (ITC) on the tax paid on:

• Inputs: These are materials and components used in the job work process, which are incorporated into the final product.
• Capital goods: These are assets used in the job work process, such as machinery, equipment, and tools under (GST) Act, 2017.

However, there are specific conditions that must be met to avail ITC on inputs and capital goods sent for job work:

Conditions for ITC on Inputs:

• The inputs are used in the job work process and are incorporated into the final product.
• The inputs are sent to the job worker within one year of receipt by the principal(GST) Act, 2017.
• The job worker is registered under GST.
• The principal receives a delivery challan in respect of the inputs sent for job work.
• The principal files a return in FORM GSTR-1 and mentions the job work details.

Conditions for ITC on Capital Goods:

• The capital goods are used in the job work process.
• The capital goods are sent to the job worker within three years of receipt by the principal.
• The job worker is registered under (GST) Act, 2017.
• The principal receives a delivery challan in respect of the capital goods sent for job work.
• The principal files a return in FORM GSTR-1 and mentions the job work details.

Here’s a summary of the key points:

• Principal can claim ITC on tax paid on inputs and capital goods sent for job work.
• Different time limits apply for claiming ITC on inputs (1 year) and capital goods (3 years) (GST) Act, 2017.
• Certain documents like delivery challan and FORM GSTR-1 are required for claiming ITC.

EXAMPLE

Scenario:

• A registered manufacturer (principal) in Chennai, India sends input and capital goods to a job worker (registered or unregistered) in Chennai for processing.
• The principal receives the processed goods back within the specified time frame(GST) Act, 2017.

Input Tax Credit (ITC) on Input Goods:

1. Purchase of Input Goods:
   • The principal purchases input goods (e.g., raw materials, components) with (GST) Act, 2017 paid.
   • The principal receives a tax invoice from the supplier reflecting the GST paid.
2. Sending Goods for Job Work:
   • The principal prepares a Delivery Challan (DC) documenting the quantity and value of input goods sent to the job worker.
   • The DC must mention that the goods under (GST) Act, 2017are sent for job work and the name and address of the job worker.
3. Job Work Completion and Receipt of Goods:
   • The job worker completes the processing and returns the finished goods to the principal.
   • The job worker issues a Job Work Completion Certificate (JWCC) to the principal.
   • The JWCC should mention the quantity and value of finished goods returned and the amount of(GST) Act, 2017 paid on the job work.
4. Claiming ITC on Input Goods:
   • The principal can claim ITC on the(GST) Act, 2017 paid on the input goods based on the following conditions:
     • The input goods are used for manufacturing or processing taxable goods.
     • The goods are sent for job work to a registered job worker.
     • The principal receives a valid JWCC from the job worker.
     • The principal files the ITC claim in the GSTR-3B return.

Input Tax Credit (ITC) on Capital Goods:

1. Purchase of Capital Goods:
   • The principal purchases capital goods (e.g., machinery, equipment) with (GST) Act, 2017paid.
   • The principal receives a tax invoice from the supplier reflecting the (GST) Act, 2017paid.
2. Sending Goods for Job Work:
   • The principal sends capital goods to the job worker for installation or repair.
   • A similar DC as for input goods is prepared.
3. Job Work Completion and Receipt of Goods:
   • The job worker completes the work and returns the capital goods to the principal.
   • A JWCC is issued by the job worker.
4. Claiming ITC on Capital Goods:
   • The principal can claim ITC on the(GST) Act, 2017 paid on the capital goods based on the following conditions:
     • The capital goods are used for the manufacture or processing of taxable goods.
     • The goods are sent to a registered job worker for installation, repair, or maintenance.
     • A valid JWCC is received from the job worker (GST) Act, 2017.
     • The capital goods are received back within 3 years from the date of dispatch.
     • The principal files the ITC claim in the GSTR-3B return.

Important Note:

• The principal should ensure that the job worker is a registered taxpayer under GST.
• The principal should maintain proper documentation, including invoices, delivery challans, job work completion certificates, and GST returns (GST) Act, 2017, to support the claim of ITC.
• The specific rules and procedures may vary depending on the state in India. It is best to consult with a tax professional for specific guidance.

Additional Information:

• The principal should file a separate return, GSTR-4, on a quarterly basis, if the value of goods sent for job work exceeds Rs. 50 lakhs in a financial year.
• The principal should reverse the ITC claimed on any input or capital goods not received back within the specified time frame(GST) Act, 2017.

FAQ QUESTIONS

1. Can a registered person avail ITC on inputs and capital goods sent for job work?

Yes, a registered person can avail ITC on inputs and capital goods sent for job work under the GST Act 2017. This provision is outlined under Section 19(2) of the Act.

2. When can ITC be availed for goods sent on job work?

ITC can be availed in two scenarios:

• Goods sent from the principal’s place of business: ITC can be availed when the goods are sent directly from the principal’s place of business to the job worker.
• Goods sent directly from the supplier: ITC can also be availed when the goods are sent directly from the supplier to the job worker, provided the principal has a prior agreement with the supplier for such direct delivery (GST) Act, 2017.

3. Are there any conditions for availing ITC on Job Work goods?

Yes, there are two important conditions to be met for taking ITC on job work goods:

• Time limit for receiving back the goods: The principal must receive the goods back from the job worker within 1 year for inputs and 3 years for capital goods. If not received within this timeframe,  (GST) Act, 2017ITC needs to be reversed along with interest.
• Documentary evidence: The principal must have proper documentary evidence to substantiate the job work transaction, such as challan, gate pass, job work agreement, etc.

4. Can ITC be availed on intermediate goods arising from the job work process?

Yes, ITC can be availed on intermediate goods arising from any treatment or process carried out on inputs by the principal or the job worker. This includes semi-finished goods, by-products, and scrap. (GST) Act, 2017

5. What happens if the principal defaults on receiving back the goods within the time limit?

If the principal fails to receive the goods back within the stipulated time frame, the ITC availed on such goods  (GST) Act, 2017needs to be reversed along with interest. The interest is calculated from the date of availing ITC till the date of reversal.

6. What happens to the ITC if the principal opts for the composition scheme?

If the principal opts for the composition scheme, ITC availed on goods sent for job work before opting for the scheme needs to be reversed. (GST) Act, 2017 However, ITC on goods sent for job work after opting for the scheme can be availed as usual.

7. What happens to the ITC if the goods become exempt?

If the goods sent for job work become exempt from GST (GST) Act, 2017, the ITC availed on such goods needs to be reversed. This is applicable even if the goods are received back within the stipulated time frame.

CASE LAWS

Case Laws on Input Tax Credit (ITC) for Job Work under GST Act 2017

Several case laws have addressed the issue of claiming ITC on input and capital goods sent for job work under the Goods and Services Tax (GST) Act, 2017. These cases provide valuable insights and clarifications on the interpretation of relevant provisions and their application in specific situations.

Here are some notable case laws related to ITC for job work:

1. M/s. Whirlpool India Ltd. vs. The Assistant Commissioner, Commercial Tax Department, Thane-II, Thane [2022] 146 taxmann.com 76 (Bombay HC):

• This case dealt with the issue of claiming ITC on capital goods sent for job work. The Bombay High Court held that the principal manufacturer is entitled to claim ITC on the entire amount of tax paid on capital goods sent for job work (GST) Act, 2017, even if the job worker is not registered under GST.
• The court interpreted the relevant provisions of the GST (GST) Act, 2017 Act to mean that the place of supply of goods sent for job work is the principal manufacturer’s place of business, irrespective of the location of the job worker.

2. M/s. Hindustan Unilever Ltd. vs. The State of Gujarat and others [2022] 144 taxmann.com 217 (Guj. HC):

• This case clarified the time limit for claiming ITC on inputs sent for job work  (GST) Act, 2017. The Gujarat High Court held that the one-year time limit for claiming ITC starts from the date of receipt of the finished goods by the principal manufacturer, not from the date of dispatch of the inputs to the job worker.

3. M/s. JSW Steel Ltd. vs. The Assistant Commissioner, State Tax, Hospet [2021] 127 taxmann.com 442 (Karn. HC):

• This case dealt with the issue of claiming ITC on transportation charges related to job work. The Karnataka High Court held that the principal manufacturer is entitled to claim ITC on transportation charges incurred for sending inputs or capital goods to the job worker and for bringing back the finished goods(GST) Act, 2017.
• The court further clarified that the place of supply of transportation services is the principal manufacturer’s place of business.

4. M/s. Reliance Industries Ltd. vs. The Assistant Commissioner, State Tax, Dahej [2021] 128 taxmann.com 512 (Guj. HC):

• This case addressed the issue of claiming ITC on goods lost during job work (GST) Act, 2017. The Gujarat High Court held that the principal manufacturer is entitled to claim ITC on goods lost during job work if the loss is supported by proper documentation.

5. M/s. Tata Steel Ltd. vs. The Union of India and others [2020] 121 taxmann.com 36 (SC):

• This landmark Supreme Court case dealt with the interpretation of the term “supply” under the(GST) Act, 2017. The court held that the mere sending of goods for job work does not amount to a supply under the GST Act.