GST & Changes in the Job Work rules

Meaning of Job work:

Where a person manufactures or produces on behalf of any other person (Raw material Supplier) such person are referred to as Job Worker. The work done by the job worker on supplied goods/ raw material is called Job Work.

Taxability on Job work Transaction under Current System:

Under the present taxation: If the work undertaken by the job worker constitutes to be manufacturing or deemed manufacturing then the Job Worker would be liable for the payment of excise duty.

However, if the raw material supplier furnished a declaration under notification no. 214/86 (this notification shifts the burden of excise duty from Job worker to the Raw Material Supplier) then the liability to pay duty on job workers ceases to exist.

Note: Only if the Final product of the Raw material supplier is dutiable then only the exemption under 214/86 is available to the Job Worker. Otherwise, the Job worker would be liable for the payment of duty.

Taxability on Job Work under GST:

Under GST system the current system would lose its relevance and there would be only ‘’supply of service’’ and ‘’supply of goods’’ as taxable events.

The Principal Supplier or the Raw material Supplier will be liable to pay CGST/SGST on goods supplied to job worker within the state. In the case of the inter-state transaction the Raw material Supplier liable pay IGST.

After the processing or manufacturing by the job worker on the goods supplied by the Raw material Supplier, the job worker also required charging the tax in the same manner as charged by the Raw material supplier on returning the goods to Raw material supplier.

Few aspects would be significant under GST:

The value of Goods: It could be possible the Raw material Supplier will supply goods at intrinsic value as he will be not selling the same to the job worker. He will charge the GST on the intrinsic value and in return the job worker will charge GST on the value of goods supplied along with its charges (Processing charges plus raw materials).

Nature of tax: If the Raw material Supplier and Job worker are situated within the state then the nature of tax would be CGST/SGST. Any other case IGST will come into play. The tax charged by the one party will be treated as a credit to the other party which will enable him to adjust the credit with his output liability.

Taxation on Capital Goods: There would be no distinction between normal and Capital goods. The tax treatment would be more or less same.

Documentation: There would be a requirement of documentary evidence for claiming a credit of GST as it is required in the current system to avail CENVAT credit, either by Challan or by the invoice issued by the parties.