Job Work Vis-à-vis Manufacture Under GST: Supply of Goods or Supply of Service

Job work and manufacturing are two processes that are often confused in the context of taxation. Understanding the difference between the two is vital for small and medium business owners and startup founders in India. Job work is a process in which a principal manufacturer sends raw materials, semi-finished goods or components to a job worker for processing, assembling, or finishing. The job worker returns the processed goods to the principal manufacturer, who then uses them in the final production of goods. On the other hand, manufacturing refers to the process of converting raw materials into finished goods.

Under the GST (Goods and Services Tax) regime, the treatment of job work and manufacturing is different. The supply of goods and services under GST is determined based on whether it is a supply of goods or a supply of services. Job work is classified as a supply of services, while manufacturing is considered a supply of goods.

Supply of Goods vs Supply of Services

The concept of supply of goods and services is a crucial aspect of the GST regime. The term 'supply' has a wide meaning and includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease, and disposal. The GST Act has classified supply into two categories - supply of goods and supply of services.

Supply of goods refers to the transfer of title or ownership of goods from one person to another. It involves the physical movement of goods, and the transfer of risk and control over the goods. On the other hand, supply of services involves the provision of a service by one person to another. It does not involve the transfer of title or ownership of goods, and there may not be any physical movement of goods involved.

Job Work under GST

Job work is a common practice in many industries, such as textiles, automobiles, and electronics. Under the GST regime, job work is considered a supply of services. This means that the job worker is providing a service to the principal manufacturer by processing, assembling, or finishing the goods. The principal manufacturer is liable to pay GST on the value of goods supplied for job work. However, if the job worker is registered under GST, they can claim input tax credit on the goods and services used for job work.

Job work can be done both on the premises of the principal manufacturer or at the job worker's premises. If the job work is done at the job worker's premises, the job worker must register under GST if their annual turnover exceeds Rs. 20 lakhs. If the job work is done on the premises of the principal manufacturer, the principal manufacturer must issue a delivery challan to the job worker for the goods sent for job work. The delivery challan must contain details such as the name and GSTIN of the principal manufacturer, the name and address of the job worker, the description, quantity, and value of goods sent for job work, and the date of dispatch. The job worker must return the processed goods to the principal manufacturer within the agreed timeframe.

Manufacturing under GST

Manufacturing is the process of converting raw materials into finished goods. Under the GST regime, manufacturing is classified as a supply of goods. This means that the manufacturer is liable to pay GST on the value of goods manufactured. The manufacturer can claim input tax credit on the goods and services used for manufacturing.

The value of goods manufactured is the sum total of the cost of all inputs used in the manufacturing process, such as raw materials, labor, and overheads. The GST rate applicable on the value of goods manufactured depends on the nature of the goods and their HSN (Harmonized System of Nomenclature) code.

Conclusion

Job work and manufacturing are two different processes with different tax implications under the GST regime. Small and medium business owners and startup founders in India need to understand the difference between the two and comply with the GST regulations to avoid penalties and legal issues.