Introduction to Section 143 of CGST Act and the option to send the goods without payment of tax to the Job Worker
It would be apt to quote provisions of Section 143 before moving ahead in this brief write up-
A registered person (hereafter in this section referred to as the “principal”) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise..
Provisions of Section 143 of CGST Act allows principal to send the goods to the Job Worker without payment of tax under intimation and subject to such conditions as may be prescribed and further goods have to be returned back from the job worker to the principal within the time specified under Section 143.
Option to send the goods without payment of tax is not mandatory for the principal and he may send the goods against payment of tax to the job worker
The facility to send the goods without payment of tax is optional upon the principal and not mandatory. Therefore, if deemed fit, principal can send the goods against payment of tax. Further, sending of goods to the job worker without payment of tax would be against intimation and subject to such conditions as may be prescribed. The intimation in this case would be ITC-04 and the have been provided in Section 143 read with Section 19 of CGST Act, 2017 and Rule 55 of the CGST Rules, 2017.
Circular No. 38/12/2018 Dated 26th March 2018 also clarified that registered person (principal) is not obligated to follow the said provisions. It is his choice whether or not to avail or not to avail of the benefit of these special provisions. Therefore, it is at the option of the registered person that whether he wants to opt for sending the goods to the Job worker with payment of taxes or without payment of taxes.
Consequences of the goods not being returned with the specified time limit
Section 143 of the CGST Act, 2017 provides that if the time frame specified therein for bringing back or further supplying the inputs / capital goods is not adhered to, the activity of sending the goods for job work shall be deemed to be a supply by the principal on the day when the said inputs/capital goods were sent out by him. Thus, the statute has by virtue of a deeming provision treated the non-receipt of goods within the specified time limit as if the goods have been supplied on the day when they were sent out by the principal to the job worker for job work.
If the principal does not opt for sending goods without payment of tax then he would have to send the goods against payment of tax
If the principal does not opt for sending goods without payment of tax then goods would be sent against payment of tax and job worker would be able to take Input Tax Credit of the tax charged thereon and also principal would also be allowed to take credit of the inputs against the said liability.
Impact of Section 143 of CGST Act, 2017
As can be envisaged from the discussion above that Section 143 allows the principal to send the goods to the job worker without payment of tax and if the principal does not opt for the same, then he can only send the goods against payment of tax. Thus, as a corollary, it can be said that had section 143 would not have been there, then sending of goods to job worker would have only be possible against payment of tax. But how good that corollary is would be required to be tested on the legal aspect and this article tries to analyse it.
Section 143 of CGST Act, 2017 vis-a-vis Rule 4(5)(a) of Cenvat Credit Rules, 2004
- Bare provision of Section 143 of CGST ACT, 2017
a) Option for sending the Goods
A registered person (hereafter in this section referred to as the “principal”) may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise..
b) What happens if goods are not received within the specified time limit
(3) Where the inputs sent for job work are not received back by the principal….within a period of one year of their 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.
- Bare provision of Rule 4(5) of Cenvat Credit Rules 2004
a) Procedure for sending the Goods
The CENVAT credit on inputs shall be allowed even if any inputs as such or after being partially processed are sent to a job worker and from there subsequently sent to another job worker and likewise, for further processing, testing, repairing, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the CENVAT credit that the inputs or the products produced therefrom are received back by the manufacturer or the provider of output service, as the case may be, within one hundred and eighty days of their being sent from the factory or premises of the provider of output service, as the case may be:
b) What happens if goods were not received within the specified time limit
If the inputs or capital goods, as the case may be, are not received back within the time specified under sub-clause (i) or (ii), as the case may be, by the manufacturer or the provider of output service, the manufacturer or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods, as the case may be, by debiting the CENVAT credit or otherwise…
Understanding-On a comparison of the above provisions of pre and post GST Regime, it can be observed that under Central Excise Regime, a person sent the goods to job worker without payment of tax and if the same were not received within the specified time limit, then ITC attributable to inputs or capital goods would have to be reversed. However, in GST Regime option has been provided to the tax payer either to remove the against payment of tax or without payment of tax and if the goods are not received within the specified time limit then it is deemed as if the goods have been supplied on the date on which the goods were sent out. Thus, on one hand pre-GST Regime provided for reversal of ITC in case of receipt of goods beyond the prescribed time limit but on the other hand, in post-GST Regime, non-receipt of goods has been treated as deemed supply.
Therefore, departure has been made from the previous regime in as much as with goods being sent out against payment of tax and non-receipt of goods within the specified time limit would be treated as deemed supply from the date when the goods were sent out for job work against reversal of Input Tax Credit in the previous regime.
Whether sending goods against payment of tax is possible without the activity of sending goods by principal to job worker being classified as supply under section 7 of CGST Act, 2017
Section 143 is not the charging section which can provide for levy of tax without the same being covered within the scope of supply by virtue of Section 7. It is further emphasised that any transaction can be held to leviable to tax without falling within the scope of supply only by virtue of a deeming provision as has been provided in section 35(6). However, Section 143 does not provide that if the principal does not opt for the option provided under this section then he would have to send the goods against payment of tax by deeming as if the goods have been supplied to the job worker. If such deeming fiction is not provided for in the section for the principal not opting for sending goods without payment of tax, then sending the goods against payment of tax is only possible provided the said transaction falls within the scope of supply under section 7 on its own. The deeming fiction is only applicable when the goods are not received within the prescribed time limit.
Thus, Section 143 unless by way of deeming provision which it does not contain, by itself cannot provide that if procedure provided under the section is not opted for then the goods can only be sent against payment of tax if the transaction by itself does not fall within the scope of supply as provided under section 7.
Circular No. 38/12/2018 dated 26th March 2018 also provides the same that essentially, sending goods for job work is not a supply as such, but it acquires the character of supply only when the inputs/capital goods sent for job work are neither received back by the principal nor supplied further by the principal from the place of business / premises of the job worker within the specified time period (under section 143) of being sent out. However, at another place it provides that it is at the option of the registered person that whether he wants to opt for sending the goods to the Job worker with payment of taxes or without payment of taxes.
Therefore, the circular contradicts itself wherein it is clarifying that sending the goods by principal to job worker is not “essentially” a supply but acquires character of supply if the goods are not received within the specified time limit but at the same time it also provides that sending the goods by following the procedure laid down in Section 143 is optional for the principal. He may send the goods against payment of tax if he deems it fit. Thus, the circular only provides that the activity acquires the nature of supply when the goods are not received back within the specified time limit but does not provide that how it acquires the nature of supply if the procedure laid down in section 143 is not opted to be followed.
The question is that if an activity of sending of goods by principal to job worker does not fall within the scope of supply essentially at the time of sending of the goods then whether tax can be demanded if it is opted that procedure laid down in the section is not to be followed. It would be apt to highlight that Section 143 is somewhat similar to conditional exemption under Section 11 wherein it allows an activity to carried out without levy of tax but the question is if an activity is not at all falling within the scope of supply then what’s the purpose of allowing it to be carried out against payment of tax.
Deeming provision in Section 143 is only applicable in case goods are not received back within the specified time limit and no such deeming provision is provided for cases wherein the option is not opted for
3) Where the inputs sent for job work are not received back by the principal….within a period of one year of their 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.
Circular No. 38/12/2018 dated 26th March 2018 clarifies that deeming provision is not only deeming the activity of sending of goods to job worker as supply but also deeming that it would be treated as supply from the date when the goods were sent out.
The term “supply” has not been defined but only scope has been given and that too an inclusive one. Whether in such scenario can movement of goods from principal to job worker and vice versa could be held to be covered within the scope of supply
The next question which arises is whether movement of goods from principal to job worker and vice versa could be held to be supply. This is so because had section 143 not been in place or if a person does not opt for sending goods without payment of tax, then tax could have been levied only if sending of such goods to job worker and receipt thereof would have been supply.
Apparently, there is no consideration when the goods are moved from principal to the job worker and vice versa. The only mode of consideration which can be sought is when the goods are sent to job worker, such movement is a supply and when the goods are received back from the job worker, such movement from job worker to principal is also a supply. Therefore, such transaction for GST would be more in the nature of exchange or barter of raw material and finished goods. But, then schedule II Para 3 provides that any treatment or process on goods belonging to others is a service. So, again how can activity of merely sending the goods without opting for provision under section 143 can be held as leviable to tax.
Further whether Para 1 Schedule I regarding permanent disposal or transfer of business asset for which ITC has been claimed, can be made applicable for treating the activity of sending goods as “Supply”. But then sending goods to job worker is not permanent disposal or transfer of business asset as the same would be brought back or supplied from the premises of job worker by principal.
The matter is far from clear although the legislative intent seems to treat the same as Supply of goods if the option provided under section 143 is not opted for.
Movement of goods for Job Work has been treated differently from the movement otherwise than for supply
The legislative intent of treating the movement from principal to job worker different from the movement otherwise than for supply is clear from Rule 55 as well which is reproduced as follows:
For the purposes of-
(a) supply of liquid gas where the quantity at the time of removal from the place of business of the supplier is not known,
(b) transportation of goods for job work,
(c) transportation of goods for reasons other than by way of supply, or
(d) such other supplies as may be notified by the Board,
the consigner may issue a delivery challan, serially numbered not exceeding sixteen characters, in one or multiple series, in lieu of invoice at the time of removal of goods for transportation, containing the following details
Thus, transportation of goods for job work has been categorised differently from the transportation of goods for reasons other than by way of supply. This might also be on account of specific provision of Section 143 and job work being treated differently from other movement of goods which have not been treated as supply.
So, what if someone does not opt for the procedure laid down in Section 143. Can he challenge that sending goods for job work by principal to job worker is not essentially a supply and therefore no tax can be demanded on not opting for procedure laid down in Section 143. The section itself does not provide that activity of sending the goods without following the procedure would be deemed as a supply but only provides for deeming provision if the goods are not received back within the specified time period and that too if the procedure is opted for
Lets try to conclude the discussion –
Supposedly, Principal has sent the goods for job work and has not opted for procedure under section 143. The question is if a person has not opted for the procedure in section 143 can he be asked to pay tax on sending the goods to job worker.
Thus, in the backdrop of the above examples, now we come to the last but the main question that whether if a person does not opt for procedure laid down under Section 143, can the legislature demand tax from the principal even if sending of the goods is not a supply under section 7 and section 143 does not contain a provision for treating the activity of sending goods by principal without opting for procedure laid down under the section as a deemed supply. It only contains a deeming provision for goods not received back within the specified time limit and that too for the person who has opted for the procedure.
The summary is that if the activity of sending goods to job worker essentially is not a supply then merely because section 143 prescribes optional procedure for sending the goods without payment tax and if such optional procedure has not been followed, it cannot be the sole criterion for holding the principal liable to payment of tax for an activity which in itself does not fall within the purview of supply (and something which has been provided in Circular No. 38/12/2018 Dated 26th March 2018).
Can a section prescribing procedure overrule the scope of section 7 because asking a person to reverse the Input Tax Credit is one thing (as in the case of pre-GST Regime) but to hold an activity to be against payment of tax would be a completely different scenario and for that a specific provision should be there for providing levy of tax either deeming or otherwise (Just like in the case of non-receipt of goods within the specified time limit). The payment of tax on activity is only possible in the statute once it is falling within the scope of supply or there is a deeming provision for such activity to be falling within the scope of supply.
Concluding the above write-up it seems that there are some missing links in the jig saw puzzle as in the case of issuance of vouchers in GST Regime and one which would be taking its own course in the future. The above write up is a food for thought for the readers and although conclusion should be inevitable for each write up but for this one it’s better to conclude without conclusion but keeping it open ended.
