Sent goods for job work? The one-year rule and ITC-04

You run a company that makes goods. Some of the work is done outside your premises. A fabricator cuts your steel. A dyer processes your fabric. A machine shop finishes your castings. You send the material out, and it is meant to come back.

Under GST this is "job work". It has its own rules. If you follow them, you send the goods out without paying tax. If the goods do not come back or get supplied in time, the law treats your dispatch as a supply to the job worker, and tax, interest and a return entry follow.

This article explains the clock, the paperwork and the return called FORM GST ITC-04, using the text of the CGST Act, 2017 and the CGST Rules, 2017.

What counts as job work

The Act defines it plainly. "Job work" means any treatment or process undertaken by a person on goods belonging to another registered person (s.2(68), CGST Act 2017). The person doing the work is the "job worker". The registered person who owns the goods and sends them out is the "principal".

The goods you send are "inputs" or "capital goods". The law also says that, for job work, "input" includes intermediate goods arising from any treatment or process carried out on the inputs by you or the job worker (Explanation to s.143, CGST Act 2017). So a half-finished part coming back from the first job worker is still an input.

For this purpose capital goods include plant and machinery as defined in the Explanation to s.17 (Explanation to Chapter V, CGST Rules 2017).

What you can do today

A registered person may, under intimation and subject to the prescribed conditions, send inputs or capital goods to a job worker without payment of tax. The goods can then go on from that job worker to another, and so on (s.143(1), CGST Act 2017).

You may also take input tax credit on inputs and capital goods sent for job work, subject to the prescribed conditions (s.19(1) and s.19(4), CGST Act 2017). You may take that credit even if the supplier delivered the goods straight to the job worker and they never reached your own premises (s.19(2) and s.19(5), CGST Act 2017).

The deadline clock

Two time limits matter. Both run from the day the goods were sent out.

Inputs: one year.
Capital goods: three years. This excludes moulds and dies, jigs and fixtures, and tools.

(s.143(1)(a) and s.143(1)(b), CGST Act 2017)

Within that time you must do one of two things.

Bring the goods back to any of your places of business, without payment of tax (s.143(1)(a), CGST Act 2017). This holds whether the job is complete or not. The law says "after completion of job work or otherwise".
Supply the goods from the job worker's premises, on payment of tax within India, or with or without payment of tax for export (s.143(1)(b), CGST Act 2017). You do not need to bring them back first.

Direct dispatch. If your supplier sends inputs straight to the job worker, the one-year period is counted from the date the job worker received them (proviso to s.19(3), CGST Act 2017). For capital goods sent directly, the three years count from the date of receipt by the job worker (proviso to s.19(6), CGST Act 2017).

Moulds, dies, jigs, fixtures and tools. The three-year limit does not apply to them. The deemed-supply rule for capital goods in s.19(6) does not apply to them either (s.19(7), CGST Act 2017).

Can the time be extended?

Yes, but only on sufficient cause being shown. The Commissioner may extend the one year and three years by a further period not exceeding one year and two years respectively (second proviso to s.143(1), CGST Act 2017). That is a request you make to the department. It is not something you assume. Ask before the limit runs out, not after.

Supplying from the job worker's place

If you plan to sell finished goods straight from the job worker's premises, there is a condition. You must declare that place as your additional place of business. There are two exceptions: the job worker is registered under s.25, or you deal in goods the Commissioner has notified (first proviso to s.143(1), CGST Act 2017).

Check this before the first dispatch.

Step by step

Step 1. Intimate the job work arrangement. Section 143(1) says the sending is "under intimation". The Act leaves the manner of intimation to be prescribed. Check the current procedure on the GST portal before the first dispatch.

Step 2. Issue a challan for every movement. Inputs, semi-finished goods or capital goods must go to the job worker under a challan issued by you. This applies even where the goods go directly to the job worker (rule 45(1), CGST Rules 2017).

Where goods move from one job worker to another, the challan can be issued by you or by the job worker sending them on. A job worker can endorse your challan with the quantity and description when goods go to another job worker or return to you (rule 45(1) and its provisos, CGST Rules 2017).

Step 3. Put the right details on the challan. The law lets the consigner issue a delivery challan instead of an invoice when transporting goods for job work (rule 55(1)(b), CGST Rules 2017). It must be serially numbered, not exceeding sixteen characters, and must show:

date and number of the challan;
name, address and GSTIN of the consigner, if registered;
name, address and GSTIN or Unique Identity Number of the consignee, if registered;
HSN code and description of the goods;
quantity, provisional where the exact quantity is not known;
taxable value;
place of supply, for inter-State movement; and
signature.

(rule 55(1), CGST Rules 2017)

The tax rate and tax amount are needed where the movement is for supply to the consignee. For a pure job work dispatch, that is not the case. The challan issued to the job worker must contain the details specified in rule 55 (rule 45(2), CGST Rules 2017).

Step 4. Declare the movement for e-way bill purposes where it applies. Where you send goods from one State or Union territory to a job worker in another, the e-way bill can be generated by you or by the job worker, if registered. This holds irrespective of the value of the consignment (provisos to rule 138(1), CGST Rules 2017). For movements inside one State, check the current value limit on the e-way bill portal.

Step 5. Keep your own accounts. The responsibility for keeping proper accounts of the inputs and capital goods lies with you as principal, not with the job worker (s.143(2), CGST Act 2017). A running ledger of what went out, what came back, and what is still outside is the only way to see an approaching deadline.

Step 6. File FORM GST ITC-04. The challan details of goods sent to a job worker or received back from one are reported in FORM GST ITC-04 (rule 45(3), CGST Rules 2017).

ITC-04: how often and by when

ITC-04 is due on or before the twenty-fifth day of the month following the period, or within any further period the Commissioner extends by notification (rule 45(3), CGST Rules 2017).

The "specified period" depends on your size (Explanation to rule 45(3), CGST Rules 2017).

Your aggregate turnover in the immediately preceding financial year	Period covered by one ITC-04
More than ₹5 crore	Six consecutive months, starting 1 April and 1 October
Anything else	The financial year

In plain terms. If you crossed ₹5 crore last year, you file twice a year. The April to September half is due by 25 October. The October to March half is due by 25 April. If you are at or below ₹5 crore, you file once a year, covering the whole financial year, due by 25 April.

The due dates above follow from the 25th-of-the-following-month rule. Extensions are announced by notification, so look at the portal before you file.

What happens if the goods do not come back

This is the part that costs money.

If inputs are not received back, or not supplied from the job worker's premises, within one year of being sent out, the law treats them as supplied by you to the job worker. The supply is deemed to have happened on the day the inputs were sent out (s.143(3), CGST Act 2017).

For capital goods, the same applies after three years (s.143(4), CGST Act 2017).

The rules add the consequence in numbers. The deemed supply must be declared in FORM GSTR-1, and you become liable to pay the tax along with applicable interest (rule 45(4), CGST Rules 2017). The input tax credit side has its own parallel rule. If inputs sent for job work are not received back within one year, it is deemed they were supplied to the job worker on the day they were sent out (s.19(3), CGST Act 2017).

The supply is treated as made on the day of dispatch, so the interest period is counted from that day. Check the current interest rate before you compute it.

Waste and scrap

Job work often leaves scrap. The law allows waste and scrap generated during job work to be supplied directly from the job worker's place of business. If the job worker is registered, the job worker pays the tax. If the job worker is not registered, you as principal do (s.143(5), CGST Act 2017).

What not to do

Do not send goods without a challan. Rule 45(1) of the CGST Rules 2017 requires one for every dispatch, including direct dispatch.
Do not let the one-year date pass in silence. After one year, the dispatch is treated as a supply from the original day (s.143(3), CGST Act 2017).
Do not sell from the job worker's place without checking the additional place of business rule. Without it, the supply from there is not covered (first proviso to s.143(1), CGST Act 2017).
Do not file ITC-04 on a quarterly pattern. The period is six months or a financial year, depending on your turnover (rule 45(3) and its Explanation, CGST Rules 2017).

What to do now

Next step: list every challan for goods still outside. Note the date each was sent out, and mark any that will cross one year (inputs) or three years (capital goods) in the next three months. (s.143(1), CGST Act 2017)
Deadline: your ITC-04 for the period is due on or before the 25th of the month following that period. For the April to September half-year, that is 25 October. For the October to March half-year, and for annual filers, that is 25 April. (rule 45(3) and its Explanation, CGST Rules 2017)
Consequence if you miss the goods clock: the goods are deemed supplied on the day they were sent out. You declare the supply in FORM GSTR-1 and pay tax with applicable interest. (s.143(3) and s.143(4), CGST Act 2017; rule 45(4), CGST Rules 2017)

Have a CA review your facts before you act or file.

Frequently asked questions

1. Does the one-year clock stop if the job worker is still working on the goods?

No. The goods must be brought back, or supplied from the job worker's place, within one year of being sent out. This applies "after completion of job work or otherwise" (s.143(1)(a) and s.143(3), CGST Act 2017). If the work is slow, ask the Commissioner for an extension for sufficient cause before the year ends (second proviso to s.143(1), CGST Act 2017).

2. Does the limit apply to machinery, moulds and tools?

Capital goods have a three-year limit (s.143(1)(a), CGST Act 2017). Moulds and dies, jigs and fixtures and tools are carved out of that limit and of the deemed-supply rules (s.143(1)(a), s.143(4) and s.19(7), CGST Act 2017).

3. I send goods to a job worker in another State. Who makes the e-way bill?

You, or the job worker if registered, irrespective of the value of the consignment (provisos to rule 138(1), CGST Rules 2017).

4. Who is responsible for the accounts of goods held by the job worker?

You are. The responsibility for keeping proper accounts for the inputs or capital goods lies with the principal (s.143(2), CGST Act 2017).

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