Job work under GST regime - Addressing the lacunae

February 15,2017
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Raghavan Ramabadran, Partner, Lakshmikumaran & Sridharan
Karthik IVRN, Associate
Rohan Muralidharan, Associate

 







1. The recently concluded 9th GST council meeting, made major inroads towards implementation of GST and may be considered as one of the most productive meetings with consensus being reached on various contentious issues such as dual control and taxing of goods in territorial waters. However, disagreement on vital aspects such as classification of goods in proposed four tier rate structure and classification of services as luxury, standard and basic continue to persist.

2. In June 2016, the Central Government released Draft Model CGST and IGST Laws in the public domain for comments. Based on the comments of various stakeholders on the shortcomings or improvements required in the Model GST Law, the Government issued the Revised Model CGST and IGST Laws (‘RMGL’) in November 2016. The Revised Model Law is definitely an improvement in juxtaposition to its previous avatar; however, there are many areas requiring clarity and there are few that have newly emerged in the Revised Model Law. One such lacuna that has emerged is in the provisions relating to Job Work.

Job work under Current law

3. Job work has been defined in Rule 2(n) of the Cenvat Credit Rules, 2004 to mean:

“processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression “job worker” shall be construed accordingly.”  

4Thus, a job worker is understood to be a person who undertakes any process on the material provided to him.

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Comments

Please tell what documents are required for movement of goods from job worker to principal after processing. Also if we issue a delivery challan, what will be the value of goods and whether GST amount needs to be mentioned on the challan (if yes then will it be calculated on the value of goods or job charges value)?

Regards

Does the permanent transfer under RMGL envisages the transaction contemplated u/r 3(5) of the CCR 2004?

U/r 3(5) companies transfer goods to Job Worker, normally who adds materials to manufacturing, for conversion and clear back on payment of duty (avail credit and add value for the purpose of valuation)

Does the following provisions in RMGL have any impact on the analysis done -

Proviso to Sec. 55(1):
PROVIDED that the “principal” shall not supply the goods from the place of business of a job worker in terms of clause (b) unless the said “principal” declares the place of business of the job-worker as his additional place of business except in a case- (i) where the job worker is registered under section 23 ; or (ii) where the “principal” is engaged in the supply of such goods as may be notified by the Commissioner in this behalf.

Sec. 55(2):
The responsibility for accountability of the inputs and/or capital goods shall lie with the “principal”.

Explanation 2 to Clause 1 of Schedule V:
The supply of goods, after completion of job-work, by a registered jobworker shall be treated as the supply of goods by the “principal” referred to in section 55, and the value of such goods shall not be included in the aggregate turnover of the registered job worker.


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