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

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Sec 19 – Taking input tax credit in respect of inputs and capital goods sent for job work 2017-04-14T11:51:50+00:00

GST India Forum – Goods and Services Tax (GST) in India Forums Bare Law Sec 19 – Taking input tax credit in respect of inputs and capital goods sent for job work

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  • Ashish BadalaCA Ashish Badala
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    (1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job worker for job work.
    (2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.
    (3) Where the inputs sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out:
    Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker.
    (4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on capital goods sent to a job worker for job work.
    (5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business.
    (6) Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, 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 sent out:
    Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker.
    (7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.
    Explanation.–For the purpose of this section, “principal” means the person referred to in section 143.

    Priya MadrechaPriya Madrecha
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    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

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