Sec 19 – Taking input tax credit in respect of inputs and capital goods sent for job work

19.1    Introduction
This provision relates to availment of credit of input tax on goods sent for job work.
19.2    Analysis
(i)     Relevant Definitions:
•    Job work: Any treatment or process undertaken by a person on goods belonging to another registered person (section 2(68).
•    Reference may also be made to entry 3 of the Schedule II where treatment or process applied to another person’s goods is a supply of services.
•    Job worker: A person who undertakes any treatment or process on goods belonging to another registered person.
•    Principal: A person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
(ii) Entitlement of credit on inputs: The principal can take credit of input tax on inputs sent to job-worker subject to fulfilment of the following conditions:
•    Rule 10 of ITC Rules provides the following:
o    To issue a challan for transfer of inputs to the job-worker including where they are sent directly (to maintain paper trail of transaction)
o    Challan is to contain all details as required in respect of an invoice in Rule 8 (of Invoice Rules). Reference may be made to Chapter VII relating to Tax Invoice, credit & debit notes for the particulars to be included in the document & for detailed description.

o    All challans issued in respect of inputs sent to job-worker and those received back are to be reported in GSTR-1
o    In case of non-receipt of the inputs within the time prescribed, the challan issued will be deemed to be invoice for the implied supply of inputs
•    The inputs, after completion of job-work, are received back by the principal within 1 year of their being sent out.
•    In case of direct supply , the period of 1 year shall be reckoned from the date the job worker receives such inputs.
•    The credit of inputs can be taken even if inputs are sent directly to job-worker’s premises without bringing it to principal’s place of business.
•    If the inputs are not received back within 1 year, it shall be deemed that such inputs had been supplied by principal to the job worker on the day when the said inputs were sent out.
(iii) Entitlement to credit on capital goods: The principal can take credit of input tax on capital goods sent to job-worker subject to the fulfilment of the following conditions:
•    The capital goods, after completion of job-work, are received back by him within 3 years of their being sent out.
•    The principal can take credit of capital goods even if such capital goods are sent directly to job-worker’s place without bringing to principal’s place of business.
•    If the capital goods are not received back within 3 years, it shall be deemed that such capital goods had been supplied by principal to the job worker on the day when the said capital goods were sent out.
•    Procedures listed in respect of inputs under Rule 10 of the Input Tax Credit Rules will apply to capital goods also (refer above).
Please note that job-working must not be confused with repair or maintenance. Job-working creates the functionality of an article but repair or maintenance restores or improves the functionality already created and possessed by that article or thing.
19.3    Comparative review
Aspect     Credit     under     present system     Input     tax     credit     under CGST
Definition of “job work”     Defined in Cenvat Credit Rules to mean processing of material supplied to job worker to complete whole or part of manufacturing
process      Defined to mean undertaking any treatment or process by a person on goods belonging to another registered person
Eligibility of Cenvat credit to principal manufacturer     Principal is eligible for Cenvat credit     Similar in CGST. Principal is eligible for Cenvat credit
Conditions for return of inputs and capital goods     For inputs – 180 days
For capital goods – 2 years     For inputs – 1 year
For capital goods – 3 years
Reversal of credit if inputs/capital goods not returned within specified time     Credit to be reversed     To be treated as deemed supply on the day when such inputs/capital goods are sent out
Re-credit if goods returned after specified time     Re-credit allowed      Not applicable
19.4    Related provisions
Section     Description
143     Special procedure for removal of goods for certain purposes
19.5    FAQs
Q1. Whether the principal is eligible to avail input tax credit of inputs sent to job worker for job work?
Ans. Yes. The principal is eligible to avail the input tax credit on inputs sent to job worker for job work.
19.6    MCQs
Q1.     The inputs sent to job work has to be received back within:
(a)    1 year
(b)    2 years
(c)    180 days
Ans.  (a) 1 year.
Q2. The principal is entitled to avail the credit on capital goods sent to job worker directly:
(a)    Yes
(b)    No
(c)    May be
Ans.  (a) Yes.
Q3. If the capital goods sent to job workerhas not been received within 3 years from the date of being sent:
(a)    Principal has to pay amount equal to credit taken on such capital goods
(b)    No need to pay amount equal to credit taken on such capital goods
(c)    It shall be treated as deemed supply of capital goods to the job worker
(d)    None of the above
Ans.  (c) It shall be treated as deemed supply of capital goods to the job worker