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Customer Care No.


Job-work transactions
under model GST law

In today's scenario, where the demand for goods and services

is increasing at a rapid pace, a large number of industries as a
part of their survival strategy are dependent on outside support
for completing their manufacturing activities. Such activities are
being undertaken by many small and medium scale industries
to complete the process on raw material/semi-finished goods as
desired by principal manufacturer and is known as "Job-Work".
Job-work is otherwise also understood as the processing or
working on goods supplied by the principal (i.e. the
manufacturer) so as to complete a part or whole of the process.
The principal usually sends the raw material or semi-finished
goods or components which are processed by the job worker
resulting in a further processed or finished product. The
manufacturer may also send finished product to a job worker for
assembling/packing. The term job-work has various synonyms in
various industries "job-work" or "sub-contracting" in
engineering industry, "processing" in chemical or textile
industry and "a loan licensee" in pharmaceutical industry,
No. 91-11- in FMGC industry.

This being the commercial aspects of the entire transaction, the Indirect
tax aspects broadly revolves around Central Excise Duty, Service tax and
Value Added Tax/Central Sales Tax. The taxable events for all three taxes
are different i.e. for Central Excise duty it is upon manufacture of goods,
for Service tax it is rendition of service and for Value Added Tax/Central
Sales Tax it is sale of goods.
Central Excise duty, being a duty leviable on manufacture of goods, the
liability shall arise only in case of 'manufacture', in terms of the provisions
of Central Excise Act, 1944, is taking place out of the activities undertaken
by the job-worker. However, in case the principal files a declaration in
terms Notification 214/86-CE (NT) dated March 25, 1986, exemption shall
be available to the job-worker from payment of duty. Where the process
undertaken by the job-worker does not amount to manufacture, service
tax would be applicable on the said transaction. The payment of service
tax by job-worker is exempted in terms of Notification No. 25/2012-ST
dated June 20, 2012, provided the principal manufacturer makes payment
of appropriate duty. Therefore, in order to determine the applicability of
Central Excise duty and Service tax on the goods sent to job worker,
various factors have to be kept in mind which includes the event of
manufacture and payment of taxes by the principal manufacturer.

Customer Care No. 91-11-

There shall also arise applicability of Value Added Tax/Central Sales Tax on the sale of any
goods by the principal manufacturer of goods to job-worker. Generally, the goods sent
within/outside the State for job-work are not sold by the principal to the job worker. In the
absence of any sale element, the goods are sent along with a declaration stating that the
goods are sent on job-work. Therefore, where the goods are sold and not just transferred for
job-work, Value Added Tax/Central Sales Tax liability shall be applicable.
With so many taxable events and various checks as regards applicability of Central Excise
duty, Service tax and Value Added Tax/Central Sales Tax on the same transaction, Goods and
Services Tax (GST) aims align the yardstick for determining the taxable event and thereby, levy
single tax on such transaction. The amendments brought in the Constitution of India vide
122ndConstitution Amendment Bill which proposes to introduce GST as a uniform levy on supply
of all goods and services across the country. Under GST, taxable event would be 'supply of
goods/service' and not activities like 'manufacture', 'sale' or 'provision of service'. The question
in this regard that was being apprehended by the industry is that how would the job-work
industry be impacted inasmuch as the applicability of GST is concerned. There was hue and cry
among the industry on the applicability of GST on job-work transactions till the time model GST
law was made online for public comments.
Customer Care No. 91-11-

Concept of supply
Let us first analyze that whether the goods sent by the principal to a job-worker is a supply of
goods or not. In this regard, Entry 5 to Schedule I of the model GST law states that the supply of
goods and/or services by a taxable person to another or non-taxable person in the course of
furtherance of business shall be treated as supply without consideration. However, the proviso
to the said entry carves out a distinction in case of supply of goods for job-work by a registered
taxable person to a job-worker in terms of section 43A. The proviso clearly spells out that the
said transaction of supply of goods by principal to job worker shall not be regarded as supply of
goods. Therefore, based on the model GST law, it can be inferred that no GST shall be applicable
on the goods supplied by the principal to a job worker.
Procedure for Job-work
Besides, the procedure to be followed for job-work purposes has been specified in Section 43A. It
states that a registered taxable person can send taxable goods to a job worker for job-work
subject to the approval of the Commissioner by way of a special order and subject to conditions
as may be specified by him. The goods sent for job-work may be sent to another job worker and
after completion of job-work, the Commissioner may allow to
bring back such goods to any place of business of the principal without payment of tax for
supply therefrom within India or with/without payment of taxes for export
Customer Care No.

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Customer Care No. 91-11-