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25 Nov 2019Posted By: Mudit Handa


Know GST Tax Rate on Job Work Activities

This year only, the GST department had amended the provisions for GST registration in the case of Job workers. As per the new provision, a Job worker is required to get GST registration only if his aggregate turnover, in a financial year exceeds the threshold limit of ₹20 Lacs.

In the language of the GST, Job work is a service of processing the goods that belong to some other registered dealer. 

In this regard, the GST Authority has now rationalized the rates of GST on the job work. The Central Board of Indirect Taxes and Customs (CBIC) has now given a clarification that-

  • If the manufacturing services (job work) are done on the goods that belong to unregistered (URD) dealers, then the GST rate of 18% shall apply.

  • If such service is performed on goods of a dealer who is having GST registration then the GST rate of 12% shall apply.

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It is worth knowing that the reason behind the amendment of GST rate on job work services is the nature of the service provided to the RD & URD dealers.

Hence, we must first learn the definition of Job Work under GST law.

 

1. What is Job Work under GST?

As per the Sec 2(68) of CGST Act 2017, the definition of Job Work is as follows-

“Job work means any treatment or processing by a person on goods belonging to another registered person and the expression ‘job worker’ shall be construed accordingly.”

As per this legal definition,

Job work refers to a service wherein a person performs treatment or processing of the goods belonging to the other dealer who has GST registration.

  • In this case, the person who has performed the treatment or any processing in the goods of RD is referred to as job worker'.

  • And the person to whom such goods are belonging is referred to as 'principal'.

Know more about GST on Job work.


2. Why is the GST rate on Job work changed?

As we notice from the definition itself, the job work refers to treatment or any processing in the goods of another registered dealer.

Now, 

  • The services referred to in the SAC Heading 9988  (i), (ia), (ib) & (ic) specifies the job work on those goods belonging to a Registered Dealer. Hence, GST @12% shall apply.
  • The service referred in the SAC Heading 9988 (iv) specifies the “manufacturing services on physical inputs owned by others”, other than the job work services mentioned in Heading (i), (ia), (ib) & (ic), i.e. of the goods of URD dealers. In this case, GST @18% shall apply.

3. Which services shall now be considered as Job work?

As per the CBIC clarification, if a service provided by the way of treatment or processing on the goods that belong to another registered person shall be considered as the Job work service. The same shall attract GST @ 12%.

Earlier, people had a view that if a service provided on goods owned by others, and the service is not considered as manufacturing services then GST @ 12% would apply.


Now CBIC has clarified that any such service provided to an unregistered person (URD) by way of treatment/processing shall be considered as “manufacturing service” only. Here, GST @ 18% shall apply.

 

If you need any guidance on GST registration, feel free to contact our business advisor at 8881-069-069.

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