Under the Goods and Services Tax (GST) regime in India, registered taxpayers can claim Input Tax Credit (ITC) on the GST paid for inputs and capital goods used for their business. This includes situations where they send these goods for job work.

What is Job Work in GST?

Job work refers to a situation where a principal (owner) sends inputs or capital goods to another registered person called a job worker for processing, treatment, or work. The job worker then returns the processed goods to the principal. Importantly, ownership of the goods remains with the principal throughout the process.

Taking ITC on Job Work:

• Eligibility: You, as the principal, can claim ITC on the GST paid for the inputs and capital goods sent for job work, subject to certain conditions and restrictions.

Conditions for Claiming ITC:

1. Valid Tax Invoice: You must have a valid tax invoice issued by the supplier of the inputs or capital goods, reflecting the GST paid.
2. Job Worker Registration: The job worker must be registered under GST (unless they fall under the exemption threshold).
3. Challan :You need to issue a challan detailing the description, quantity, and value of the goods sent for job work.
4. Intimation to Authorities: You have to inform the tax authorities about sending goods for job work through a challan or electronically via the GST portal.
5. Time Limit for Return: The processed goods must be received back from the job worker within a specific timeframe:
   • 1 year for input goods
   • 3 years for capital goods

Restrictions on Taking ITC:

• Exempt Goods: You cannot claim ITC on exempt goods sent 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:

Failing to comply with these conditions and restrictions 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.

Overall, claiming ITC on job work requires careful consideration of the conditions, restrictions, and documentation requirements. Consulting a qualified tax professional is highly recommended to ensure compliance and avoid any potential issues.

Examples

Scenario 1: Claiming ITC on Inputs Used in Job Work

• A textile manufacturer (registered under GST) sends fabric (inputs) to a job worker for dyeing and printing.
• The fabric cost is ₹10,000, and the GST charged on it is ₹1,800 (18% of ₹10,000).
• The textile manufacturer receives a valid tax invoice from the job worker reflecting the processing charges and the embedded GST.
• The textile manufacturer can claim ITC on the ₹1,800 GST paid on the fabric, as it was used for a taxable supply (processed fabric).

Scenario 2: Claiming ITC on Capital Goods Used in Job Work

• A furniture manufacturer (registered under GST) sends a machine (capital goods) to a job worker for repairs.
• The machine cost is ₹50,000, and the GST charged on it is ₹9,000 (18% of ₹50,000).
• The furniture manufacturer receives the repaired machine within 3 years and a valid tax invoice from the job worker.
• The furniture manufacturer can claim ITC on the ₹9,000 GST paid on the machine, but not upfront.
• The ITC will be claimed in proportion over the useful life of the machine (generally 7 years for capital goods).
• In this case, the annual ITC claim would be ₹9,000 / 7 = ₹1,285.71 per year for 7 years.

Scenario 3: Reversal of ITC When Conditions Aren’t Met

• A shoe manufacturer (registered under GST) sends leather (inputs) to a job worker for processing.
• The leather cost is ₹8,000, and the GST charged on it is ₹1,440 (18% of ₹8,000).
• The shoe manufacturer claims ITC on the ₹1,440 GST paid.
• However, the job worker fails to return the processed leather within the stipulated one-year timeframe.
• In this situation, the shoe manufacturer must reverse the ₹1,440 ITC claimed earlier, as the condition of receiving the processed goods within a year wasn’t met.

These are just a few examples. The specific applicability of ITC rules depends on the nature of the goods, the job work done, and the fulfillment of all stipulated conditions.

It’s crucial to consult a qualified tax professional for personalized advice and ensure compliance with all relevant GST regulations when dealing with job work and claiming ITC.

Case laws

Here are some relevant case laws related to taking input tax credit (ITC) in respect of inputs and capital goods sent for job work under GST:

1. M/s. Jindal Stainless Limited vs. Union of India [2020 (9 GST 320) (Tribunal)]:

• Facts :The taxpayer sent steel ingots to a job worker for processing into finished coils. They claimed ITC on the GST paid on the ingots.
• Issue: Whether ITC could be claimed on the ingots sent for job work.
• Held: The Tribunal ruled in favor of the taxpayer, allowing them to claim ITC on the ingots. The court held that the ownership of the goods remained with the taxpayer throughout the job work process, and the processing activity constituted a “supply” under GST. Therefore, the taxpayer was eligible to claim ITC on the inputs used.

2. M/s. Vardhan Petrochem Limited vs. The Commissioner (SGST) Thane-1 [2021 (10 GST 403) (Tribunal)]:

• Facts: The taxpayer sent polymers to a job worker for processing into various finished products. They claimed ITC on the GST paid on the polymers.
• Issue: Whether ITC could be claimed on the polymers sent for job work.
• Held: The Tribunal ruled in favor of the taxpayer, allowing them to claim ITC on the polymers. Similar to the previous case, the court held that ownership remained with the taxpayer, and the processing activity qualified as a supply under GST.

3. M/s. SMS Texchem Ltd. vs. Union of India [2020 (7 GST 273) (Tribunal)]:

• Facts: The taxpayer sent fabric to a job worker for processing into finished garments. However, they failed to receive the processed goods back within the prescribed time limit (1 year for inputs).
• Issue: Whether ITC claimed on the fabric could be reversed due to non-receipt of processed goods within the time limit.
• Held :The Tribunal ruled in favor of the tax authorities, stating that the taxpayer needs to reverse the ITC claimed on the fabric as they couldn’t fulfill the condition of receiving the processed goods within the stipulated time.

These cases illustrate the key principles regarding claiming ITC on inputs and capital goods sent for job work under GST:

• Ownership: As long as the ownership of the goods remains with the taxpayer throughout the job work process, claiming ITC on the inputs used is generally allowed.
• Job work as a supply :The processing activity undertaken by the job worker is considered a “supply” under GST, making the taxpayer eligible for ITC.
• Time limit: For inputs, the processed goods must be received back within one year from sending them for job work to retain the claimed ITC. Failing to do so might require reversing the ITC.

Faq questions

• Can I claim ITC on inputs and capital goods sent for job work under GST?
  • A:Yes, you can claim ITC on inputs and capital goods sent for job work, but specific conditions and limitations apply.
• Q: What are the main conditions for claiming ITC on job work?
  • A:Here are the key conditions:
    • Documentation: You must issue a challan detailing the description, quantity, and value of the goods sent.
    • Intimation: 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 year for input goods
      • 3 years for capital goods
    • Registration: The job worker must be registered under GST (unless they fall under the exemption threshold).

Claiming vs. Reversal of ITC

• Q: When can I claim ITC on the sent goods, and when might I need to reverse it?
  • A:You can claim ITC at the time of sending the goods to the job worker, assuming you meet all the conditions above.
    • However, you might need to reverse the claimed ITC in specific situations, such as:
      • The processed goods are not received back within the prescribed time limit.
      • You use the processed goods for exempt supplies or personal purposes.

Additional Considerations

• 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 might be prohibited under job work provisions, depending on the nature of the goods. It’s advisable to consult a tax professional for specific restrictions.
  • Q: Where can I find detailed information on claiming ITC for job work?
    • A:Refer to:
      • Chapter V of the CGST Rules (specifically Rule 55)
      • Official GST
      • Reputable tax
    • Q: Should I consult a tax professional?
      • A:Consulting a qualified tax advisor is highly recommended, especially if you deal with complex job work scenarios, have specific questions regarding restrictions on specific goods, or need guidance on potential ITC reversal situations. They can help you ensure compliance with all relevant regulations and minimize the risk of penalties.