Under the Indian GST regime, sending inputs or capital goods to a job worker for processing or treatment involves specific conditions and restrictions:

Conditions for Sending Inputs/Capital Goods to a Job Worker:

1. Registration:Both the principal (the sender) and the job worker must be registered under the GST Act.
2. Purpose:The job worker must use the inputs/capital goods solely for the intended processing or treatment specified by the principal, and not for their own business purposes.
3. Documentation:The principal must issue a delivery challan or any other document, containing details like description of goods, value, and tax charged, to accompany the dispatched goods.
4. Tax Payment:The principal generally doesn’t pay GST on the outward supply of inputs/capital goods to the job worker. However, exceptions may apply in specific situations.

Restrictions on Sending Inputs/Capital Goods to a Job Worker:

1. Return Period:The processed goods must be returned by the job worker to the principal within a specific timeframe:
   • Inputs:1 year from the date of sending, with an extension of 1 year possible with justification.
   • Capital Goods:3 years from the date of sending, with an extension of 2 years possible with justification.
2. Non-Return:If the processed goods are not returned within the stipulated period, it’s deemed a supply from the principal to the job worker, attracting GST liability on the principal.
3. Moulds, Dies, Jigs, Fixtures, and Tools:These items are exempt from the conditions and restrictions mentioned above. They are considered capital goods and treated as supplied to the job worker on the date of sending, attracting GST at applicable rates.

Additional Points:

• The principal can claim Input Tax Credit (ITC) on the GST paid on the inputs sent to the job worker, provided the conditions mentioned above are met.
• The job worker is not entitled to claim ITC on the job charges received from the principal.
• It’s crucial to maintain proper records of all transactions involving job work, including delivery challans, invoices, and return receipts.

Examples

• Job worker must be registered under GST:The job worker you send the goods to must be registered under the Central Goods and Services Tax (CGST) Act or the Integrated Goods and Services Tax (IGST) Act. This ensures proper tax compliance and allows for crediting of taxes paid.
• Purpose of sending the goods:The inputs or capital goods must be sent for further processing, testing, repairs, or any other purpose related to the business of the principal (the entity sending the goods). They cannot be used by the job worker for their own business purposes.
• Receipt of goods:The principal must receive the processed inputs or capital goods back within a specified timeframe:
  • Inputs:Within one year from the date of sending them to the job worker, unless an extension is granted by the Commissioner.
  • Capital goods:Within three years from the date of sending them to the job worker, unless an extension is granted by the Commissioner.

Restrictions:

• Certain goods are not eligible:The following goods are generally not eligible for sending to job workers with ITC benefits:
  • Exempt goods:Goods that are exempt from GST cannot be sent for job work and claim ITC on the processing charges.
  • Capital goods used in exempted activities:Capital goods used for making exempt supplies cannot be sent for job work and claim ITC on the processing charges.
• Moulds, dies, jigs, fixtures, and tools:These are not subject to the one-year and three-year return timelines, and any ITC claimed on them cannot be reversed.
• A textile manufacturer can send fabric to a job worker for dyeing and claim ITC on the processing charges, as long as the dyed fabric is received back within one year and used for taxable supplies.
• A bakery can send flour to a job worker for grinding and claim ITC on the processing charges, as long as the ground flour is received back within one year and used for making taxable bakery products.
• A company cannot send packaging materials to a job worker for printing a company logo if the company is not registered under GST, as using unregistered services is not allowed.

Important Note:

These are just a few examples, and the specific conditions and restrictions may vary depending on the nature of the goods and the purpose of job work. It’s crucial to consult with a tax advisor or refer to the official GST regulations for detailed and up-to-date information before sending inputs or capital goods to a job worker.

Case laws

• Job Work as Supply:The act of sending inputs or capital goods to a job worker for processing or treatment is generally considered a “supply” under GST. This implies the principal (who sends the goods) is liable to pay tax on the value of the service provided by the job worker.
• Credit for Inputs:The principal can avail Input Tax Credit (ITC) on the GST paid on inputs sent to the job worker, subject to specific conditions and regulations outlined in the CGST Act and Rules.
• Conditions for ITC claim:
  • The inputs must be received back by the principal within a specified timeframe (generally 1 year for inputs, 3 years for capital goods).
  • The principal must possess a valid tax invoice for the job work service received from the job worker.
  • The inputs must be used for the intended purpose of making taxable supplies.

Relevant Case Laws:

While no case law directly addresses conditions and restrictions on job work supplies, these cases offer valuable insights:

• M/S. Vincent Polymers Pvt. Ltd. vs. The Union of India & Ors. (W.P.(C) No. 6884/2017): This case clarified that sending inputs to a job worker for processing constitutes a “supply” under GST, attracting tax liability.
• M/S. Jindal Steel & Power Ltd. vs. Union of India & Ors. (W.P.(C) No. 12740/2017): This case emphasized the importance of a valid tax invoice for claiming ITC on inputs sent for job work.

Recommendations:

• Always consult with a qualified tax advisor to understand the specific requirements and complexities involved in sending inputs or capital goods to job workers under GST.
• Ensure proper documentation, including tax invoices for both the inputs and the job work service received.
• Adhere to the prescribed timeframes for returning inputs and capital goods to the principal.
• Stay updated on any changes or clarifications issued by the GST authorities regarding job work provisions.

Faq questions

Sending Goods to Job Workers

• Q: What is a job worker under GST?
  • A:A job worker is someone who performs work or treatment on goods owned by another person (the principal) without transferring ownership. The principal remains the owner of the goods throughout the process.
• Q: Can I send inputs and capital goods to a job worker for processing?
  • A:Yes, sending inputs and capital goods to a job worker is allowed under GST, but certain conditions and restrictions apply.

Conditions for Sending Goods

• Q: What are the main conditions I need to meet to send goods to a job worker?
  • A:The key conditions include:
    • Documentation:You must issue a challan detailing the description, quantity, and value of the goods sent.
    • Intimation:You must inform the tax authorities about sending goods for job work through a challan or electronically via the GST portal.
    • Time limit for return:The processed goods must be received back within a specific timeframe:
      • 1 yearfor input goods
      • 3 yearsfor capital goods
    • Registration:The job worker must be registered under GST (unless they fall under the exemption threshold).

Restrictions on Sending Goods

• Q: Are there any restrictions on the types of goods I can send for job work?
  • A:Yes, certain restrictions apply:
    • Exempt goods:You cannot send exempt goods for job work.
    • Certain finished goods:Specific finished goods may be prohibited under job work provisions, depending on the nature of the goods. It’s advisable to consult a tax professional for specific restrictions.

Consequences of Non-Compliance

• Q: What happens if I fail to comply with these conditions and restrictions?
  • A:Non-compliance can lead to:
    • Tax liability:You may be liable to pay tax on the value of the goods sent, as it may be deemed a supply.
    • Penalties:You could face penalties imposed by the tax authorities.

Additional Considerations

• Q: Where can I find detailed information about these conditions and restrictions?
  • A:Refer to:
    • Chapter V of the CGST Rules (specifically Rule 55)
    • Official GST
  • Q: Should I consult a tax professional?
    • A:Consulting a qualified tax professional is highly recommended, especially if you deal with complex job work scenarios or have specific questions regarding restrictions on specific goods. They can ensure you understand and comply with all relevant regulations, minimizing the risk of penalties and ensuring smooth business operations.

Eligibility and conditions for taking input tax credit