JOB WORK OF BIDI MADE OF TOBACCO.

[Ashwin Bhalakiya]

Dear Sir

My friend who is registered under gst , supply tobacco and packing material to a manufacturer by delivery chalan by stating as job work for making hand made bidi . Manufacturer uses its own bidi leaves, labour, establishment,etc and send then to my friend sale bill of hand made bidis (HSN 2403) by charging 28% gst. Along with bill MFG also enclose consumption details of tobacco and packing material which sent by my friend . The same is accounted in my friends books. Then after he sales finished bidi in Market by charging 28% gst. He takes the Input credit of purchase of bidi.

My query whether this arrangement comes under job work for my friend and manufacturer.

Whether my friend is liable for ITC 04. Is this arrangement in GST is correct.

Experts are requested to pl reply.

Ashwin

[KASTURI SETHI]

Before x-raying your issue, I want to know on what value is GST being charged by job-worker (manufacturer) from your friend i.e. principal ? What about other duties of Central Excise i. e. BED, NCCD etc. ? In job-work procedure, tax/duty liability is cast upon the principal, being the owner of inputs etc. What is logic of issuing invoice by manufacturer instead of sending the job-worked goods on delivery challan ? Hybrid procedure is not allowed.

[KASTURI SETHI]

Sh. Asashwin Bhalakiya Ji,

The following facts are beyond dispute:

(i) Tobacco products are covered under both Central Excise Act and GST Acts. Accordingly, Central Excise Tariff Act and Customs Tariff Act (made applicable to GST) are applicable.

(ii) If we peruse the definition of 'Job-worker' under both Acts, one aspect is beyond dispute that job-worker works for and on behalf of the principal (owner). The principal is responsible for discharging tax liability on the job-worked goods. He is responsible for inputs/semi-finished goods/goods sent to the job-worker. Even waste or bye-product arising during job work is owned by the principal. The job-worker can supply/clear/sell the finished goods (job-worked) after permission from the principal. The job worker cannot deal with such goods on his own sweet will. In this context, the job-worker is to follow the principal's instructions. This is as per per Central Excise Act and GST Acts.

(iii) To understand the concept of job-worker, it can be said that the job-worker can also be called, 'Contractor' or sub-contractor' for this purpose.

(iv) The processes carried out by the job worker on the inputs amounts to manufacture. The character of the goods is changed. Thus the process conforms to the definition of 'manufacture' as per Central Excise Act and GST Acts.

(v) To some extent, the job-worker can use its own material for this purpose.

(vi) As per both Acts, job-worked goods were to be returned to the principal on that very delivery challan received from the principal but instead of that the goods were supplied/sold/cleared to the principal on the tax invoice.

(vii) Had such goods been sold to some other person on the directions of the principal, that buyer would have taken ITC.

(viii) In this arrangement, there is no revenue loss and hence procedural lapse only.

(ix) ITC-04 return is required to be filed.

(x) The whole such arrangement can be termed as 'Job-work' under both Acts.

(xi) Pl ensure that all taxes (GST) and Central Excise duties (BED, NCCD etc.) are paid.

AI Summary

Job-work classification for bidi manufacturing affects GST liability and requires the principal to discharge tax and file prescribed returns. Job-work in bidi manufacture is a contract manufacturing arrangement where the principal retains ownership of inputs and finished goods and is liable for tax; deviations from delivery-challan procedures by invoicing finished goods constitute procedural noncompliance but do not alter substantive tax liability, and the principal must ensure payment of applicable GST and excise duties and file the prescribed job-work return.