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At last we are here, GST has come into force, and India is being ripped apart by the
missing transitional provisions. The doubts in trade are being cleared by twitter handle
and Press Reports. All the awareness that is being shoved down the throat of people in
trade.
It is pretty much clear, as to how the job work model is going to be operated under GST.
Section 143 of Central Goods and Services Tax Act, 2017 and its replicators (‘GST Law’),
provides the model for job work. Goods to be sent under challan, job work activity be
done, then removed on payment of duty/ without payment of duty within 1/ 3 years. In
the present article, we shall deal with the aspect of Job work charges.
The job work is a trade parlance for “some outsource activity”. This outsource activity
could be anything, be it mere painting of items, be pressing of sheet metal, be it mere
assembling. However, job work as trade parlance is different from job work defined
under the erstwhile Central Excise Law vide Notification No. 214/86-CE (NT);
Explanation I For the purposes of this notification, the expression “job work”
means processing or working upon of raw materials or semi-finished
goods supplied to the job worker/ so as to complete a part or whole of the
process resulting in the manufacture or finishing of an article or any
operation which is essential for the aforesaid process.
Thus Central Excise Law, demarcates job work between (1) Job work amounting to
manufacture and (2) Job work doesn’t amounting to manufacture. The treatment of both
sorts of job work under the erstwhile Excise and Service Tax Regime can be summarized
below;
The generic meaning of service is an activity, and job work is any treatment. The
activity and treatment are used in same context, and by tracing the origins of both
activity and treatment, it can be concluded that job work falls within the purview
of activity and hence a service and hence a supply.
Based on the above tests, job work charges shall be chargeable to GST.
In para 1 above, we had tested the sanctity of job work as supply within the main
definition of supply, but interestingly, job work’s identity qua supply can be seen
from following perspective as well.
3.1 Contribution of higher value inputs for job work by job worker
Job work has been defined vanilla in section 2 (68) of job work as viz. mere
treatment of goods by another person would make the treatment as job work.
Bus does it? What if the job work contributes inputs of a substantial value in
the process of job work, will it still be called as job work. Following cases can be
of aid
Prestige Engineering (India) Ltd vs CCE [1994 (73) ELT 497 (SC)]
The traditional meaning of job work was defined by the Hon’ble Supreme Court
in the case of M/s Prestige Engineering (India) Ltd supra, we can analyze the
same in parts;
Now, what does the expression `job work' mean?
Job work mainly is a concentration of labour and skill with the use
of gadgets
Although, use of minor items by job workers’ won’t affect the nature
of job work
However, the process involving inclusion of substantial value
materials doesn’t come within the purview of job work.
Abhinav Chemicals’ judgment is based on the interpretation of job work qua Notification
No. 214/86-CE. The notification has stood the test of time and was a cardinal part of
Central Excise Law before being eaten by GST (still relevant for petro products). It can
therefore rationally be said that this job work exemption works on the idea of Cenvat
Chain and really serves the purpose of job work as intermediate exemption. The Hon’ble
CESTAT, Delhi had the following views on the job work;
The Tribunal distinguished the meaning of job work merely on the basis of Notification
difference;
…..the meaning of job work in respect of Notification No. 119/75-C.E. which
was subject matter of the judgment in the case of Prestige Engineering
(India) Ltd. (supra) cannot be extended to the meaning of job work in respect
of Notification No. 214/86, dated 25-3-1986.
The Tribunal strictly adhered to the meaning of job work given in Notification No.
214/86-CE, which per se doesn’t make any distinction between job worker putting
substantial value goods and job worker putting lower value goods in the process of job
work.
We do not find merit in this contention for the reason that the explanation
defining the expression “job work” does not provide that all the raw
materials for manufacture of final product must be supplied by the principal
manufacturer.
Job work Charges – Taxability
Besides, the Tribunal also accepted the “Neutrality nature of Job work”.
13. Otherwise also even if the benefit of Notification No. 214/86-C.E. was
denied to the respondent that excise duty would have been passed on to
M/s. HLL who would have availed Cenvat credit on entire duty paid on
Aluminium Sulphate cleared by the respondent. Therefore, analyzing from
this angle also the entire exercise would have been revenue neutral.
Job work defined by Supreme Court is not relevant for job work defined
specifically otherwise. [Force can also be find in the judgment of M/s Sujag Fine
Chemicals (India) Ltd]
Higher Value and Lower Value has no meaning
Neutrality theory should also be considered
However, the Revenue's contention that the activity carried out by the
respondent is not job work in view of the decision of the Apex Court in the
matter of Prestige Engineering India Limited (supra) is misplaced. In the
above decision the Apex Court was dealing with Notification issued under
the Central Excise Act namely Notification No. 119/75, dated 30-4-1975.
For the purpose of the aforesaid notification the word job work has been
defined in the explanation to the notification. Explanation to the
notification No. 119/75, dated 30-4-1975 is a restricted definition
and it requires job worker to work on the goods supplied by the supplier and
return the same after the raw material has undergone manufacturing
process. There is no such definition of jobbing provided in
Notification No. 32/97-Cus., dated 1-4-1997.
Job work Charges – Taxability
Audi Automobiles & Ors. Vs CCEx [2010 (249) ELT 0124 (Tri. - Del.)]
The captioned judgment was delivered in the context of Rule 10A of Central Excise
Valuation Rules. The appellant therein were automobile body builders, they had
procured chassis from customers and used valuable body building inputs for the
application of body building process. The process was termed as job work for the
purpose of Rule 10A and again the judgment of Prestige Engineering supra was
distinguished on the context;
16. Considering the facts of the said case and the context in which the
expression 'job work', had been understood and explained by the Apex Court
in Prestige Engineering (India) Ltd., it cannot be said that the Apex Court
has ruled that the expression 'job-work', in every provision of law is to be
understood irrespective of the context in which the same is used therein.
Now that we have some guidance as to whether a process should be considered as job
work under GST or not, we can take an illustration of a Car manufacturer (‘A’) who
procures Sheet Metal part (‘FG’) at INR 15,000 per piece from a Tier 1 Supplier (‘B’), A
sends its logo (‘Child Part’) valuing INR 200 to B which is to be AFFIXED in the FG. The
cost sheet of B includes Metal costing INR 10,000, Overheads of INR 2,000 and Profit of
3,000. The question now is, Can the mere affixation of Child Part be considered as job
work? And can ‘A’ send the Child Part tax free under the job work procedure laid down
under section 143 ibid?
Applying the definition of job work as given in section 2 (68) supra and the principles
founded through the discussed judgments, it will be rational to say that even
AFFIXATION of a part would lend it to a treatment over the part and hence be covered
as job work. Consequently, the procedure under section 143 can be followed.
With all due respect to the above interpretation, the AFFIXATION process can also be
said to be not a job work, on the ground that treatment is being given to the FG by
affixing the Child Part rather that the other way around.
Apparently, the above supply of service and the definition of job work contain similar
wordings with the difference
That job work is defined “active”, while S. No. 3 defined as “passive”. Not much
of a difference.
Another noticeable difference is that while job work uses the words “undertaken”,
S. No. 3 uses the words “applied”.
The thoughtful reason for such difference could be due to the fact that while job
work is defined in the context of Principal manufacturer (hence the expression
Job work Charges – Taxability
“undertaken” third person is used), S. No. 3 is defined in the context of Job worker
(hence the expression “applied” first person is used).
In Para 1 above, we had seen that job work is in the nature of services, and Schedule II
vide S. No. 3 only solidify the same. It can therefore be concluded that job work is supply
of service and given that no exemption has been provided in the GST Act(s) or the rules
or the Notifications thereunder, the same shall be a taxable supply.
At the same time we need to keep in mind that any treatment which doesn’t satisfy the
process of job work, will have to be classified as per the relevant provisions of the Act.
Whether it will be supply of taxable goods or taxable services, will depend upon the facts
involved.