2019 (11) TMI 110 - AAR - GST

Clarification on GST for Job Works & Raw Materials: Compliance, Rates, Documentation

The case clarified the GST implications related to professional/job-works charges, supply of raw materials to job work units, maintenance of documents, ... Rate of GST - professional / job works charges to be paid by the applicant - Restriction under GST laws - Documents or formats to be maintained by the applicant - Generation of waste - HELD THAT:- The rate of GST applicable is 18% as per Si No. 26 (iv) - Manufacturing services on physical inputs (goods) owed by others, other than (i), (ia), (ii), (iia) and (iii) above of Notification No. 11/2017 Central Tax (Rate) dated 28,06.2017. Restriction under GST laws - rate of GST - supply of raw materials to the job work unit and get the finished goods to the applicant from the job work unit as per the required design and supervision of the engineers of the applicant - HELD THAT:- As per Section 143 of the CGST/SGST Act, 2017; the registered principal may, without payment of tax, send inputs or capital goods to a job worker for job work and, if required, from there subsequently to another job worker and so on. Subsequently, on completion of the job work, the principal shall either bring back the goods to his place of business or supply 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. Documents or formats to be maintained by the applicant under GST laws - transfer of raw materials to the job work unit - processing and return of finished goods from the job work unit to the applicant or despatch of finished goods from the job work unit directly to the destination of the applicant’s customers - HELD THAT:- As per the provisions of Section 143 (1) of the CGST Act, 2017 the principal can supply goods directly from the place of business / premises of the job worker to its end customer. The supply of goods by the principal from the place of business / premises of the job worker to the end customer will be regarded as supply by the principal and not by the job worker. If the job worker is not registered then the principal shall declare the place of business of the job worker as his additional place of business - As per Rule 45 of the CGST/SGST Rules, 2017; the inputs, semi-finished goods or capital goods shall be sent to the job worker and received back by the principal under the cover of a delivery challan containing particulars as prescribed in Rule 55 ibid issued by the principal, including where such goods are sent directly to a job worker. The principal is required to file FORM GST ITC-04 every quarter furnishing the details of the goods sent for job work. Change of rate of tax - consumables like paints primers and consumable spares like locking ring are arranged by the job work unit - HELD 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 - The job worker, as a supplier of services, is liable to pay GST at the applicable rate. The job worker shall issue an invoice at the time of supply of the services & determined in terms of Section 13 read with Section 31 of the CGST/SGST Act. The value of services would be determined in terms of Section 15 of the CGST/SGST Act and-would include not only the service charges but also the value of any goods or services used by him for supplying the job work services. The use of own goods by the job worker in addition to the goods supplied by the principal for job work will not change the nature of the activity and will have no bearing on the rate of GST applicable for the job worker. Is there any tax liability on the applicant under GST laws on the value of the scrap held with the job work unit? - HELD THAT:- As per sub-section (5) of Section 143 of the CGST/SGST Act, 2017; any waste and scrap generated during the job work may be supplied by the registered job worker directly from his place of business on payment of tax, or by the principal if the job worker is not registered. Issues:1. Rate of tax under GST for professional/job-works charges2. Restrictions in GST laws for supplying raw materials to job work unit and receiving finished goods3. Documents to be maintained under GST laws for transferring raw materials and finished goods4. Impact of job work unit arranging consumables on GST rate5. Tax liability under GST laws on scrap held with job work unitAnalysis:1. The rate of GST applicable for professional/job-works charges is 18% as per Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.2. As per Section 143 of the CGST/SGST Act, 2017, a registered principal can send inputs or capital goods to a job worker without payment of tax. The goods must be brought back within specified timeframes. The rate of GST applicable remains the same as mentioned earlier.3. Under Section 143(1) of the CGST Act, 2017, the principal can supply goods directly from the job work unit to the end customer. The principal must maintain delivery challans as per Rule 45 of the CGST/SGST Rules, 2017, and file FORM GST ITC-04 every quarter for goods sent for job work.4. If the job work unit arranges consumables like paints and primers, the job worker can use their own goods in addition to those supplied by the principal for job work. The nature of activity and GST rate applicable for the job worker remain unaffected by the use of own goods.5. Waste and scrap generated during job work can be supplied by the registered job worker directly from their place of business, as per Section 143(5) of the CGST/SGST Act, 2017. Tax liability on scrap disposal applies to the job work unit, ensuring compliance with GST laws.