GST UPDATE ON JOB WORK

Job work has been a critical aspect in the Central Excise regime. In the GST regime also, there are a number of ambiguities in the procedure and other related provisions of job work. One such ambiguity is pertaining to the valuation of job work.
Some experts are taking a view that the job work will be treated as composite or mixed supply and tax will be payable accordingly. The term composite supply is defined in section 2(30) of Central Goods and Service Tax (CGST) Act, 2017 as follows:-
"(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration.— Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;"

The analysis of above definition makes it clear that a supply will come in definition of composite supply if it consists of two or more 'taxable supplies of goods" "or services" "or both". Therefore, to be a composite supply, there should be atleast two or more supplies of goods or services or both. In the instant case, job work which includes both material and labour has been deemed to be "service" under schedule II of the CGST Act, 2017. According to clause 3 to Schedule II, any treatment or process which is applied to another person's goods is a supply of services. Therefore, job work will be considered as supply of service.

In view of this, job work as a whole will be considered as supply of service irrespective of fact that both material and labour are included in it. This fact is further clarified by the drafting of Schedule II which specifically covers those supplies where both material and labour are included. Thus, this schedule creates a legal fiction according to which job work is deemed to be a supply of service and all the provisions of the CGST Act shall apply accordingly.
Further, the valuation of supply of goods or services is to be done in accordance with provisions of section 15 of the CGST Act, 2017. This section reads as follows:-
"15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include–––

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy."

Since job work is deemed as supply of service; its valuation shall be done in accordance with section 15 of the CGST Act, 2017. According to this section, value of supply of service shall be transaction value, i.e. the price actually payable for the said supply of the services. In case of job work, some processing is being done on the material supplied by the principal by using some consumables, cost of which is incurred by the job worker only. The cost of such consumables is already included in the job charges quoted by the job worker. Therefore, in case of job work, the transaction value will be the amount that is being paid or payable to job worker. The cost of consumables incurred by the job worker cannot be included in the transaction value as these expenses are not liable to be incurred by the principal, it is the responsibility of the job worker only. Under clause (b) of section 15(2), only that amount is includible in the transaction value which was supposed to be incurred by the supplier by incurred by the recipient. This is not in case of consumables. This is general practice prevalent throughout the country where the processing is being done by the job worker and during the said processing, some consumables are being used the cost of which is borne by job worker himself. Therefore, the cost of such consumables cannot be included in the transaction value defined under section 15(2) of the CGST Act, 2017 and valuation of job work will be done on the basis of job charges paid or payable by the principal.

You can visit us at www.capradeepjain.com and also at our facebook page at https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/

Comments

GST UPDATE ON JOB WORK

Post a Comment

Query