Understanding the job work concept: Most of the manufacturing industry and especially the automobile sector depends on some or the other form of job work from an outside source. One of the major reasons for this is that you cannot do all types of manufacturing work but the customer who buys the product wants it as a one-stop solution. If you are a sheet metal fabricator, you may be required to supply a sheet metal part assembly which has some hardware and also an aluminium die cast part. Since your core competency lies in sheet metal fabrication you get the aluminium die casting done from an outside source. For economies of scale, you buy aluminium and get it processed through the job worker to meet your requirement.
Definition of job work: Outsourcing a part or complete operation to a third party. The principal manufacturer sends the raw material or semi-finished goods to the job worker with directions for the completion of the requisite process.
The current tax structure: Job work is a type of manufacturing activity and hence the excise duty becomes applicable on it. However, certain provisions allow the principal manufacturer to declare the job work as not amounting to manufacturing resulting in excise duty exemption. It is also quite likely that the activity falls under service classification and the service tax becomes applicable on it. The combination of the two is also possible as in the case of painting job work. Here excise is paid on the paint quantity while the painting process attracts service tax. However, the form 57F4 is in rampant use in the industry for job work in most of the cases and the industry is claiming excise duty and service tax exemption for job work.
The GST classification: GST works on the principal of taxation of supplies and hence manufacturing becomes irrelevant. Job work has been classified as a supply of service. GST will be applicable on the processing charges levied by the job worker on the supplies to the principal manufacturer. This will help remove the anomaly in the composite billing which requires a distinction between process charges and material charges. One GST rate gets applied to the process cost irrespective of the classification of goods or service. This will also do away with the related litigation cases.
Supplies from the manufacturer: The principal manufacturer will not be required to pay any tax when he supplies the goods for processing at the job worker end. The condition is that the goods are returned to the principal’s place within one year from the sending date. For capital goods, the provision extends to three years. The job worker’s place of work can also be declared as the principal’s additional place of business in case the principal wants to directly supply the goods from the job worker’s place on payment of taxes. The onward supplies on payment of taxes can also take place if the job worker is already registered for some commissioner notified goods.
As of now, it appears that the job working taxation will be simplified under the GST and may augur well for both the principal manufacturer as well as the job worker.
Tax Credit: GST Credit will be allowed on Input/ Capital Goods Sent to job worker, provided the goods are received back within stipulated time:
|Input Sent to job Worker||Received back within one year|
|Capital Goods sent to job worker||Received back within three years|
If the capital goods are directly sent to a job worker for job-work without their being first brought to his place of business, and in such a case, the above period shall be counted from the date of receipt of the capital goods by the job worker