16 JOB WORK

🔒 1. Sudama Industries Ltd., registered in the State of Jammu & Kashmir,

manufactures plastic pipes for other suppliers on job-work basis.
On 10.01.20XX, Plasto Manufacturers (registered in the State of
Himachal Pradesh) sent plastic worth Rs. 4 lakh and moulds worth Rs.
50,000, free of cost, to Sudama Industries Ltd. to make plastic
pipes.Sudama Industries Ltd. also used its own material - a special type
of lamination material for coating the pipes - worth Rs. 1 lakh in the
manufacture of pipes.It raised an invoice of Rs. 2 lakh as job charges
for making pipes and returned the manufactured pipes through challan
to Plasto Manufacturers on 20.10.20XX in the same financial year.
The same quality and quantity of plastic pipes, as was made for Plasto
Manufacturers, were made by Sudama Industries Ltd. from its own raw
material and sold to Solid Pipes (registered in Jammu and Kashmir) for
Rs. 7.5 lakh on 20.10.20XX.
Examine the scenario and offer your views on the following issues with
reference to the provisions relating to job work under the GST laws:
(i) Is there any difference between the manufacture of plastic pipes
by Sudama Industries Ltd. for Plasto Manufacturers and for Solid
Pipes?
(ii) Whether Sudama Industries can use its own material even when
it is manufacturing the plastic pipes on job-work basis?
(iii) Whether sending the plastic and moulds to Sudama Industries
Ltd. by Plasto Manufacturers is a supply and a taxable invoice
needs to be issued for the same?
(iv) WhetherSudama Industries should include the value of free of
cost plastic and moulds supplied by Plasto Manufacturers in its
job charges?

🔑 (i) As per section 2(68) of the CGST Act, 2017, job work means any
treatment or process undertaken by a person on goods belonging to

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another registered person and the expression “job worker” shall be

construed accordingly. The registered person on whose goods
(inputs or capital goods) job work is performed is called the principal.
Thus, the job worker is expected to work on the goods sent by the
principal.
Therefore, when the goods are manufactured by Sudama Industries
Ltd. for Plasto Manufacturers, it is job work as the manufacturing
process is undertaken on inputs (plastic and moulds) supplied by the
principal (Plasto Manufacturers) and when goods are manufactured
for Solid Pipes, it is manufacture on own account as the pipes are
manufactured from company’s own raw material. Further,
manufacture on job work basis is a supply of service in terms of para
3 of Schedule II to the CGST Act, 2017 and manufacture of pipes on
own account is a supply of goods.
(ii) It has been clarified vide Circular No. 38/12/2018 GST dated
26.03.2018 that the job worker, in addition to the goods received
from the principal, can use his own goods for providing the services
of job work.
(iii) Section 143 of the CGST Act, 2017 provides that the registered
principal may, without payment of tax, send inputs or capital goods
to a job worker for job work. Subsequently, on completion of the job
work, the principal shall either bring back the goods to his place of
business or supply (including export) the same directly from the
place of business/ premises of the job worker within one year in case
of inputs or within three years in case of capital goods (except
moulds and dies, jigs and fixtures or tools). Thus, the provision
relating to return of goods is not applicable in case of moulds, dies,
jigs, fixtures and tools.
If the time frame of one year/ three years for bringing back or further
supplying the inputs/ capital goods is not adhered to, the activity of
sending the goods for job work shall be deemed to be a supply by
the principal on the day when the said inputs/ capital goods were
sent out by him. Thus, essentially, sending goods for job work is not
a supply as such, but it acquires the character of supply only when
the inputs/ capital goods sent for job work are neither received back
by the principal nor supplied further by the principal from the place

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of business/ premises of the job worker within one/ three years of

being sent out.
Therefore, sending of plastic and moulds by Plasto Manufacturers to
Sudama Industries Ltd. (job worker) is not supply as the
manufactured pipes are received back within the stipulated time and
the provisions relating to return of goods are not applicable in case
of moulds.
Rule 45 of the CGST Rules provides that the inputs, semi-finished
goods or capital goods being sent for job work shall be sent under
the cover of a challan issued by the principal.
Therefore, Plasto Manufacturers need not issue a taxable invoice for
sending the inputs to Sudama Industries Ltd. but should send the
inputs under the cover of a challan.
(iv) As per section 15(2)(b) of the CGST Act, any amount that the supplier
is liable to pay in relation to such supply but which has been incurred
by the recipient of the supply and not included in the price actually
paid or payable for the goods or services or both, is includible in the
value of supply. However, Sudama Industries Ltd. should not include
the value of free of cost plastic and moulds supplied by Plasto
Manufacturers in its job charges as Sudama Industries Ltd. is
manufacturing the plastic pipes on job work basis. The scope of
supply of the Sudama Industries Ltd. is to manufacture plastic pipes
from the raw material supplied by the Plasto Manufacturers. Thus,
at no point of time was Sudama Industries Ltd. (supplier of job work
service) liable to pay for the raw material and therefore, the value
thereof should not be included in its job charges even though the
same has been incurred by Plasto Manufacturers (recipient of job
work service).

🔒 2. Alok Pvt. Ltd., a registered manufacturer, sent steel cabinets worth ` 50

lakh under a delivery challan to M/s Prem Tools, a registered job
worker, for job work on 28.01.20XX. The scope of job work included
mounting the steel cabinets on a metal frame and sending the mounted
panels back to AlokPvt. Ltd. The metal frame is to be supplied by M/s
Prem Tools. M/s Prem Tools has agreed to a consideration of ` 5 lakh
for the entire mounting activity including the supply of metal frame.
During the course of mounting activity, metal waste is generated which

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is sold by M/s. Prem Tools for ` 45,000. M/s Prem Tools sent the steel
cabinets mounted on the metal frame to AlokPvt. Ltd. on 03.12.20XX
in the same financial year.
Assuming GST rate for metal frame as 28%, for metal waste as 12% and
standard rate for services as 18%, you are required to compute the GST
liability of M/s Prem Tools. Also, give reason(s) for inclusion or
exclusion of the value of cabinets in the job charges for the purpose of
payment of GST by M/s Prem Tools.

🔑 As per para 3 of Schedule II to the CGST Act, any treatment or process which
is applied to another person’s goods is a supply of services and accordingly
is subject to GST rate applicable for services.
In the given case, M/s Prem Tools (job worker) undertakes the process of
mounting the steel cabinets of Alok Pvt. Ltd. (principal) on metal frames. In
view of para 3 of Schedule II to the CGST Act cited above, the mounting
activity classifies as service even though metal frames are also supplied as a
part of the mounting activity. Accordingly, the job charges will be
chargeable to rate of 18%, which is the applicable rate for services.
Further, the value of steel cabinets will not be included in the value of
taxable supply made by M/s Prem Tools as the supply of cabinets does not
fall within the scope of supply to be made by M/s Prem Tools. M/s Prem
Tools is only required to mount the steel cabinets, which are to be supplied
by AlokPvt. Ltd., on metal frames, which are to be supplied by it.
As regards sale of waste generated during the job work, since M/s Prem
Tools is registered, the tax leviable on the supply will have to be paid by it
in terms of section 143(5) of the CGST Act. Such supply will be treated as
supply of goods and subject to GST rate applicable for metal waste.
Accordingly, the GST liability of M/s Prem Tools will be computed as under:

Particulars Amount
(`)

Job charges 5,00,000

GST @ 18% (A) 90,000

Sale of metal waste 45,000

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GST @ 12% (B) 5,400

Total GST payable (A) + (B) 95,400

🔒3 Bedi Manufacturers, a registered person, instructs its supplier to send

the capital goods directly to Rajesh Enterprises, who is a job worker,
outside its factory premises for carrying out certain operations on the
goods. The goods were sent by the supplier on 10-04-20XXand were
received by the job worker on 15-04-20XX. Rajesh Enterprises carried
out the job work, but did not return the capital goods to their principal
- Bedi Manufacturers. Discuss whether Bedi Manufacturers are eligible
to retain the input tax credit availed by them on the capital goods.
What action under the GST Act is required to be taken by Bedi
Manufacturers.
What would be your answer if in place of capital goods, jigs and fixtures
are supplied to the job worker and the same has not been returned to
the principal?

🔑 As per section 19(5) of the CGST Act, 2017, the principal is entitled to take
input tax credit of capital goods sent for job work even if the said goods are
directly sent to job worker.
Further, section 19(6) of the CGST Act, 2017 stipulates that where the capital
goods sent directly to a job worker are not received back by the principal
within a period of 3 years of the date of receipt of capital goods by the job
worker, 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
received by the job worker.
In view of aforementioned provisions, Bedi Manufacturers are eligible to
retain the input tax credit availed by them on the capital goods.
However, if the capital goods are not returned by Rajesh Enterprises within
3 years from 15.04.20XX (date of receipt of capital goods by job worker), it
shall be deemed that such capital goods had been supplied by Bedi
Manufacturers to Rajesh Enterprises on 15.04.20XX and Bedi Manufacturers
shall be liable to pay the tax along with applicable interest.
However, there is no time limit for return of moulds and dies, jigs and
fixtures or tools sent out to a job worker for job work [Section 19(7) of the
CGST Act, 2017.

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However, if Rajesh Enterprises does not return the jigs and fixtures to Bedi
Manufacturers, it shall not be considered as a supply of jigs and fixtures to
Rajesh Enterprises by Bedi Manufacturers. In this case also, Bedi
Manufacturers will be eligible to retain the input tax credit availed by them.

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