19.2.1 Deemed supply by Principal if Inputs not received back within 1 year

Question-1 [ICSI-E-D22-75-1]

The time limit beyond which if inputs sentfor job work is not returned will be treated as supply in CGST Act, 2017 :

(A) 1 Year; (B) 2 Years; (C) 3 Years; (D) 5 Years

Answer

Section 19(3) - Where inputs sent for job work are not received back by the principal after completion of job work or otherwise or supplied from the place of job worker within 1 year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out to job worker:

Question-1A [ICSI-E-J19-O-82-1]

When the goods are sent to job worker, input tax credit will be reversed if the goods are not received back by the principal after completion of job work within of being sent out.

(A) 3 months; (B) 6 months; (C) 1 year; (D) 3 years

Question-2 [ICSI-P-J19-3e-4]

Goyal Manufacturers, a registered person, instructs its one of the suppliers to send the input directly to Sumit Enterprises, who is a job worker, outside its factory premises for carrying out certain operations on the goods. The goods were sent by the supplier on 15th July, 2018 and were received by the job worker on 17th July, 2018.

Whether Goyal Manufacturers are eligible to take ITC on the input goods directly received by the job worker from the supplier. Discuss, what action under the GST law is required to be taken by Goyal Manufacturers.

Answer

Section 19(2) - The principal shall take ITC on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.

Section 19(3) - Where inputs sent for job work are not received back by the principal after completion of job work or otherwise or supplied from the place of job worker within 1 year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out to job worker:

Rule 45(4) – Said deemed supply shall be declared in GSTR-1 and principal shall pay tax + applicable interest.

Advise

In view of aforementioned provisions, Goyal Manufacturers are eligible to take the ITC on the input goods directly received by the job worker from the suppliers.

However, if the inputs are not returned by Sumit Enterprises within 1 year from 17.07.2018 (date of receipt of input goods by job worker), it shall be deemed that such input had been supplied by Goyal Manufacturers to Sumit Enterprises on 17.07.2018 and Goyal Manufacturers shall be liable to pay the tax along with applicable interest.

19.2.2 Deemed supply of Principal if Capital Goods not received back or supplied within 3 year

Question-1 [ICSI-E-J22-95-1]

Principal entitled for input tax credit on capital goods sent for job work in CGST Act, 2017:

(A) If goods sent are returned within one year

(B) If goods sent are returned within three years

(C) If goods sent are returned within six months

(D) If goods sent are returned within nine months

Question-2 [ICSI-P-D19-1b-5]

Amit Ltd., a registered supplier, is engaged in manufacturing activity. It also gives job work to other units. It purchased raw materials on 5th June, 2018 for Rs.2 lakhs (+GST @ 12%). It dispatched 50% of the raw material to job worker on 10th July, 2018. How much can the company claim as input tax credit in respect of those goods?

What is the time limit for receiving the goods after completion of job work by the job worker? What would be your answer in case 50% of the raw material is directly sent to job worker by the original seller of goods ? Will your answer be different in case it is capital good, instead of raw material ?

Answer

Section 19(1) or (2) - The principal shall take ITC on input, when inputs sent to a job worker for job work or if the inputs are directly sent to a job worker for job work without being first brought to his place of business.

Section 19(3) - Where inputs sent for job work are not received back by the principal after completion of job work or otherwise or supplied from the place of job worker within 1 year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out to job worker:

Section 19(6) - Where Capital Goods sent for job work are not received back by the principal within 3 years of being sent out it shall be deemed that such CG had been supplied by the principal to the job worker on the day when the said capital goods were sent out to Job Worker:

Rule 45(4) – Said deemed supply shall be declared in GSTR-1 and principal shall pay tax + applicable interest.

Advice

As per Section 19(1), it can claim whole ITC can be availed regard less of the fact that it has wholly or partially sent such goods to a job worker.

As per section 19(3), the time limit is that the job worker must return the raw material as such or as processed goods within 1 year from the date of dispatch by Amit Ltd [i.e. 10-07-2018].

As per Section 19(2), it can claim input tax credit in entirety regard less of the fact that it has wholly or partially sent directly such goods to a job worker.

As per Rule 45(4), In the case of delay, the raw material so sent to job worker would be treated as supply from the date when the goods where originally sent out Amit Ltd would be required to pay tax along with interest.

In the case of capital goods, the time limit for return is 3 years instead of 1 year. If the goods are not returned by the job worker within 3 years then such capital goods would be deemed to have been supplied to the job worker on the date when the same were originally sent and therefore Amit Limit would be required to pay tax on such capital goods along with interest.

19.2.4 No Deemed Supply for moulds and dies, jigs and fixtures, or tools

Question-1 [ICAI-F-Ch16-4]

Genie Engineers had a mould delivered directly to a job worker from the supplier for making certain precision parts for use in the factory of Genie Engineers. As per agreement, the mould was to remain with the job worker as long as work was being sent to him. After four years a departmental audit team that visited the job worker noticed the mould and traced it to Genie Engineers. GST was demanded from Genie Engineers for taking ITC without receiving the mould and furthermore for not bringing the mould back after three years of delivery to the job worker. How should they respond to this?

Answer

Section 19(6) - Where Capital Goods sent for job work are not received back by the principal within 3 years of being sent out  it shall be deemed that such CG had been supplied by the principal to the job worker on the day when the said capital goods were sent out to Job Worker:

Section 19(7) – Nothing contained in sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work..

In view of above provision,  Genie Engineers have correctly taken the ITC on moulds.

Quesiton-2 [ICAI-F-M22-5b-4]

Octa Manufacturers, Jalandhar, a registered supplier, instructs its supplier Dawson Ltd. to send a CNC machine directly to the job worker, J Enterprises, outside its factory to carry out certain operations on the goods. The CNC machine was sent by the supplier on 7th March 2018 and was received by the job worker on 10th March. J Enterprises carried out the job work and returned the CNC machine to the principal, Octa Manufacturers on 1st March 2021.

(i) Can Octa Manufacturers retain the ITC availed by them on the CNC machine?

(ii) Would your answer be the same if in place of CNC machine, jigs and fixtures were supplied to the job worker which were returned to the principal on 1st March 2021.

Answer

Section 19(4) - subject to such conditions and restrictions as prescribed in Rule 45 te principal shall be allowed ITC on Capital Goods sent to a job worker for job work

Section 19(6) - Where Capital Goods sent for job work are not received back by the principal within 3 years of being sent out it shall be deemed that such CG had been supplied by the principal to the job worker on the day when the said capital goods were sent out to Job Worker:

Section 19(7) – Nothing contained in sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work..

Advice

Goods received by job worker on 10th March, 2018

Capital goods must have been received back on 09^th March, 2021

Capital goods actually received back on 01^st March, 2021

(i) In view of section 19(4), since capital goods received back before 3 years, Octa Manufacturers can retain the ITC availed by them on the CNC machine?

(ii) As per section 19(7), conditions of return of moulds and dies, jigs and fixtures, or tools are not applicable.

Hence, in that case also, Octa Manufacturers is entitled to take and retain ITC in respect of moulds and dies etc.