Input Tax Credit on Job Work | Taxation for CA Intermediate PDF Download

What is job work?

Job work means processing or working on raw materials or semi-finished goods supplied by the principal manufacturer to the job worker. This is to complete a part or whole of the process which results in the manufacture or finishing of an article or any other essential operation. As per GST Act, job work means any treatment or process undertaken by a person on goods belonging to another registered person. The person doing the job work is called job worker. The ownership of the goods does not transfer to the job-worker but it rests with the principal. The job worker is required to carry out the process specified by the principal on the goods.
For example: Big Shoe Manufacturers (Principal) send out the half-made shoes (upper part) to smaller manufacturers (Job worker) to fit in the soles. The job workers send back the shoes to the principal manufacturer after the completion of operation.

Input Tax Credit on job work 

The principal manufacturer will be allowed to take credit of tax paid on purchase of goods send on job work. However, there are certain conditions like: 

1. Place of business

• Goods purchased Sent to job worker
  • From principal’s Place of business 
  • Directly from the principal’s sellers – without going to the  Principal first 

ITC will be allowed in both cases

2. Effective Date

• Effective date for Goods sent
  • If sent from principal’s Place of business
    • Date of goods sent out
• If sent directly from the principal’s sellers 
  • Date of receipt of Goods By job worker 

Is there a time limit for the principal manufacturer to receive back the goods?

Yes. The principal manufacturer must receive the goods back within the following period: Capital Goods – 3 years from effective date (like equipment, machinery etc.) Input Goods – 1 year from effective date (semi-processed items, dies, moulds etc.)

What happens if the goods are not received within the specified time? 

In case goods are not received within the period as mentioned above, such goods will be deemed as supply from effective date. The principal manufacturer will have to pay tax on such deemed supply.

3. Accompanying documents for job work

• Accounts & records The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal. 
• Delivery Challan All goods sent for job work must be accompanied by a challan.
  • The challan will be issued by the principal. 
  • It will be issued even for the inputs or capital goods sent directly to the job-worker. 
  • The details of challan must be shown in FORM GSTR-1.
  • Details of challan must also be filed through Form GST ITC – 04. 
  • The challan issued must include the following particulars: 
  • Date and number of the delivery challan 
  • Name, address and GSTIN of the consigner and consignee 
  • HSN code, description and quantity of goods 
  • Taxable value, tax rate, tax amount- CGST, SGST, IGST, UTGST separately 
  • Place of supply and signature

FORM ITC-04 & Due date of form GST ITC-04

Form GST ITC-04 must be submitted by the principal every quarter. He must include the details of challan in respect of the following-

• Goods dispatched to a job worker or
• Received from a job worker or
• Sent from one job worker to another
• ITC-04 is a quarterly form. It must be furnished on or before 25th day of the month succeeding the quarter. For example, for Oct-Dec quarter, the due date is 25th Jan.

Recovery of Input Tax Credit and Interest thereon: Section 19 of CGST Act 

Where credit has been taken wrongly, the same shall be recovered from the registered taxable person in accordance with the provisions of this Act. 

Summary of taking input tax credit in respect of inputs and capital goods sent for job work of CGST ACT, 2017 

•  The principal shall be allowed input tax credit on inputs sent to a job worker for job work. 
• The principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business. 
• Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out: Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker. 
• The principal shall, subject to such conditions and restrictions as may be prescribed, are allowed input tax credit on capital goods sent to a job worker for job work. 
• The principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business. 
• Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out: Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker.