Q.1) What will be the treatment of Job work material sent in the earlier regime / excise regime and not returned back within 6 months from appointed date?

(A). For this issue which is common with most manufacturers who use outsourced jobworkers for getting done certain process like finishing, polishing, repairing, etc., Section 141 (1) of the CGST Act needs to be referred. The text of the section is as below with relevant part highlighted.

While the annual reconciliation of GST summaries will happen, one can observe this kind of issues being misused out to be taken care. There may no controls built in the system for tracking the delayed job work consignments especially in transition situation. Same tends to be missed out. It is a good idea to correct this before annual returns are filed and the audit under GST is conducted.

“Sec 141. (1) Where any inputs received at a place of business had been removed as such or removed after being partially processed to a job worker for further processing, testing, repair, reconditioning or any other purpose in accordance with the provisions of existing law prior to the appointed day and such inputs are returned to the said place on or after the appointed day, no tax shall be payable if such inputs, after completion of the job work or otherwise, are returned to the said place within six months from the appointed day:

Provided that the period of six months may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding two months:

Provided further that if such inputs are not returned within the period specified in this sub-section, the input tax credit shall be liable to be recovered in accordance with the provisions of clause (a) of sub-section (8) of section 142.”

The above is clearly mentioning that

Jobwork material gets a fresh life of six months from 1st of July 2017.

If the same is returned within six months, there shall be no effect in the GST

If not returns, the input tax on such value shall be recoverable as per Sec 142 (8) (a) of the CGST Act.

Now the questions would about the mechanism for paying such tax arrears that accrue in case of delay is more than six months from 1st of July 2017.

We need to check the Sec 142 (8) (a) of the CGST Act for the recovery proceedings. The relevant abstract is as below….

“Sec.142(8)(a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act”

There is a debated if these arrears need to be paid as excise or GST. If we read the sentence correctly, if the payment is Suo Moto, it should be paid in the existing law as the same is called as “recovery” by Section 141 (1). In my view, the tax shall be payable as central excise and the same shall not be eligible for any kind of Input Tax Credit or ITC under GST.

Having said that, there is a grey area about the recovery provisions and one my use Table 4B which allows reversal of ”Other ITC reversed” in the slot of CGST as the same is characterized from Central Excise Duty.

Q.2) What will be the treatment when the material comes back to such Jobworker after the tenure of six months is over?

(A). This is amounting to supply for the principle under GST on expiry of 6 months from the appointed date. Hence, on the day after expiry of six months, the principle will raise the Tax Invoice on the Jobworker for such material supplied and charge applicable GST on the same. This GST shall be available as Input Tax Credit to the Jobworker immediately.

When the jobworker send the good back to the principle, the jobworker should be invoicing for entire supply (material and the jobwork charges) to the principle as this transaction amounts to fresh supply under the GST Act.

Please feel free to write to us on mitesh@apmh.in for any further queries on the above blog.