Section 143 of GST Act: Job work procedure

Explanation of CGST Section 143(1)

Section 143(1) of the Central Goods and Services Tax (CGST) Act, 2017, deals with the job work process, allowing a registered taxpayer (referred to as the “principal”) to send inputs or capital goods to a job worker without paying tax, subject to prescribed conditions.

Key Provisions of Section 143(1)

1. Sending Goods for Job Work Without Payment of Tax
   • A registered person (the principal) can send inputs or capital goods to a job worker without paying tax.
   • The goods can be sent from one job worker to another.
2. Time Limits for Bringing Back Goods Without Tax
   • Inputs: Must be brought back to the principal’s place of business within one year of being sent.
   • Capital Goods (except moulds, dies, jigs, fixtures, and tools): Must be brought back within three years.
3. Option to Supply Goods from Job Worker’s Premises
   • Instead of bringing goods back, the principal can supply them directly from the job worker’s premises.
   • This can be done:
     • Within India on payment of tax.
     • For export, with or without payment of tax.
4. Conditions for Supplying Goods from Job Worker’s Premises
   The principal can supply goods from the job worker’s premises only if:
   • The job worker’s premises is declared as an additional place of business by the principal, except in cases where:
     1. The job worker is already registered under Section 25 of the CGST Act.
     2. The principal is engaged in supplying notified goods (as specified by the Commissioner).
5. Extension of Time Limits
   • The Commissioner has the power to extend:
     • The one-year limit for inputs by an additional one year.
     • The three-year limit for capital goods by an additional two years.

Implications of Section 143(1)

• This provision helps businesses avoid upfront GST liability when sending goods for job work.
• The time limits ensure that job work does not become a way to defer tax indefinitely.
• The requirement to declare the job worker’s premises ensures proper tax control and compliance.

Explanation of CGST Section 143(2)

Section 143(2) of the Central Goods and Services Tax (CGST) Act, 2017, places the responsibility of maintaining proper accounts of inputs and capital goods used in job work on the principal (the registered person who sends goods for job work).

Key Takeaways from Section 143(2):

1. Obligation on the Principal
   • Even though the inputs or capital goods are physically sent to the job worker’s premises, the legal responsibility for maintaining proper records remains with the principal.
   • This means that the principal must track:
     • The quantity of goods sent for job work.
     • The details of job workers handling the goods.
     • The date of dispatch and return of goods.
     • Any supplies made directly from the job worker’s premises.
2. Importance of Proper Record-Keeping
   • Helps in ensuring compliance with the one-year and three-year time limits under Section 143(1).
   • Assists in audit and reconciliation of tax liabilities.
   • Prevents misuse of job work provisions for tax evasion.
3. Implications for Job Workers
   • While job workers handle the goods, they are not required to maintain records under Section 143(2) (unless separately required under GST rules).
   • The principal remains accountable even if the job worker fails to return the goods within the prescribed time.

Example Scenario:

🔹 A manufacturer (Principal) sends raw materials (inputs) to a job worker for processing.
🔹 The manufacturer must maintain detailed records of:

• The quantity of raw materials sent.
• The date of dispatch.
• The expected return date (within one year).
• The details of any direct supply from the job worker’s location.
  🔹 If goods are not returned within the time limit, they become liable to tax as a deemed supply under GST.

Explanation of CGST Section 143(3)

Section 143(3) of the Central Goods and Services Tax (CGST) Act, 2017 deals with the consequences of not receiving inputs back from the job worker within the prescribed time limit.

Key Provisions of Section 143(3):

1. Time Limit for Returning Inputs
   • As per Section 143(1)(a), inputs sent for job work must be received back by the principal within one year from the date of dispatch.
   • Alternatively, as per Section 143(1)(b), the principal can supply the inputs directly from the job worker’s premises within the same time frame.
2. What Happens if Inputs Are Not Received or Supplied in Time?
   • If the inputs are not brought back or supplied within one year, the law assumes that the principal has supplied the goods to the job worker on the original date of dispatch.
   • This means:
     • The principal must pay GST on the deemed supply.
     • The tax liability is calculated as if the supply took place on the date the inputs were originally sent to the job worker.
3. Effect on the Principal’s GST Liability
   • Since the inputs are now considered sold (supplied) to the job worker, the principal must:
     • Raise a tax invoice as per GST rules.
     • Pay GST along with interest (if applicable) from the original date of dispatch.
     • Include this deemed supply in their GST returns.

Example Scenario:

🔹 A manufacturer (Principal) sends raw materials to a job worker on January 1, 2024, for processing.
🔹 The inputs must be brought back or supplied directly from the job worker’s premises by December 31, 2024 (within one year).
🔹 If the inputs are not returned or supplied by the deadline, it will be deemed that the principal supplied these goods to the job worker on January 1, 2024.
🔹 The principal must pay GST on this deemed supply as if the sale occurred on January 1, 2024.

Why is Section 143(3) Important?

✅ Prevents tax evasion: Ensures that job work is not used as a way to avoid paying GST.
✅ Ensures compliance: Encourages principals to maintain proper records and track job work timelines.
✅ Protects government revenue: Ensures that GST is paid on goods that are not returned in a timely manner.

Explanation of CGST Section 143(4)

Section 143(4) of the Central Goods and Services Tax (CGST) Act, 2017 deals with capital goods sent for job work and the consequences of not bringing them back or supplying them within the prescribed time.

Key Provisions of Section 143(4):

1. Time Limit for Returning Capital Goods
   • As per Section 143(1)(a), capital goods (excluding moulds, dies, jigs, fixtures, and tools) must be received back by the principal within three years from the date of dispatch.
   • Alternatively, as per Section 143(1)(b), the principal can supply the capital goods directly from the job worker’s premises within three years.
2. What Happens if Capital Goods Are Not Received or Supplied in Time?
   • If the capital goods are not brought back or supplied within three years, it will be deemed that the principal has supplied the capital goods to the job worker on the original date of dispatch.
   • This means:
     • The principal must pay GST on the deemed supply.
     • The tax liability is calculated as if the supply took place on the date the capital goods were originally sent to the job worker.
3. Effect on the Principal’s GST Liability
   • Since the capital goods are considered sold (supplied) to the job worker, the principal must:
     • Issue a tax invoice for the deemed supply.
     • Pay GST along with any applicable interest from the original date of dispatch.
     • Include this deemed supply in their GST returns.

Example Scenario:

🔹 A manufacturer (Principal) sends machinery (capital goods) to a job worker on January 1, 2024, for modification.
🔹 The machinery must be brought back or supplied directly from the job worker’s premises by December 31, 2026 (within three years).
🔹 If the machinery is not returned or supplied by the deadline, it will be deemed that the principal supplied it to the job worker on January 1, 2024.
🔹 The principal must pay GST on this deemed supply as if the sale occurred on January 1, 2024.

Why is Section 143(4) Important?

✅ Prevents tax evasion: Ensures that businesses do not use job work as a way to indefinitely defer tax payment.
✅ Ensures compliance: Encourages businesses to track job work timelines and maintain proper records.
✅ Protects government revenue: Ensures that GST is paid on capital goods that are not returned on time.

Explanation of CGST Section 143(5)

Section 143(5) of the Central Goods and Services Tax (CGST) Act, 2017 deals with the disposal of waste and scrap generated during the job work process. It provides clarity on who is responsible for paying tax on such waste or scrap.

Key Provisions of Section 143(5):

1. Waste and Scrap Can Be Supplied Directly
   • Any waste or scrap generated during the job work process can be supplied directly from the job worker’s premises.
   • This avoids unnecessary movement of waste back to the principal’s premises, making disposal easier.
2. Who Pays Tax on Waste and Scrap?
   • If the job worker is registered under GST:
     • The job worker can supply the waste or scrap directly from his premises.
     • The job worker will pay GST on such supply.
   • If the job worker is NOT registered under GST:
     • The principal (who originally sent the goods for job work) must account for the waste/scrap supply and pay GST.

Example Scenario:

🔹 A manufacturer (Principal) sends metal sheets to a job worker for cutting and shaping.
🔹 During the process, metal scrap is generated.

✅ If the job worker is GST-registered:

• The job worker can directly sell the scrap to a scrap dealer.
• The job worker will charge and pay GST on the sale.

✅ If the job worker is NOT registered under GST:

• The principal must take responsibility for selling the scrap.
• The principal must charge and pay GST on the sale.

Why is Section 143(5) Important?

✅ Simplifies waste disposal: Avoids unnecessary transportation of waste back to the principal.
✅ Clarifies tax liability: Ensures proper GST compliance based on the job worker’s registration status.
✅ Prevents tax evasion: Ensures that tax is paid on waste and scrap supply, whether by the job worker or the principal.

Explanation of the “Explanation” under CGST Section 143

This explanation clarifies the definition of inputs in the context of job work. It states that inputs also include intermediate goods that arise from any process or treatment performed by either:

1. The Principal (the registered person who sends goods for job work), or
2. The Job Worker (the person processing the goods).

Key Takeaways from the Explanation

1. Inputs Are Not Limited to Raw Materials
   • The term “input” does not only refer to raw materials sent by the principal.
   • It also includes semi-finished or intermediate goods that are produced during processing.
2. Intermediate Goods Are Part of the Job Work Process
   • When a job worker processes raw materials, the resulting semi-finished goods are considered inputs.
   • Similarly, if the principal partially processes materials before sending them for job work, those partially processed materials are also treated as inputs.
3. Example of Intermediate Goods in Job Work
   • A fabric manufacturer (Principal) sends cotton yarn to a job worker for weaving.
   • The woven fabric produced by the job worker is an intermediate good before further processing (like dyeing or printing).
   • As per this explanation, the woven fabric is also considered an input in the job work process.
4. Ensures Compliance with Section 143 Time Limits
   • Since intermediate goods are classified as inputs, they must be returned or supplied within the one-year limit prescribed under Section 143(1)(a) & (b).

Why Is This Explanation Important?

✅ Expands the definition of inputs: Includes semi-finished goods in job work regulations.
✅ Provides clarity: Ensures that intermediate goods are treated the same way as raw materials.
✅ Prevents confusion: Ensures that tax compliance and time limits apply equally to all stages of job work.