GST Basics #14: Section 19 — Input Tax Credit When Your Goods Go Out for Job Work

Section 19 of the CGST Act lets a manufacturer keep input tax credit on inputs and capital goods sent to a job worker, even though the goods never reach his own premises. The conditions, the one-year and three-year deadlines, and the paperwork.

Very few manufacturers do everything themselves. You send castings out for machining, fabric out for dyeing, components out for plating. In GST that is job work, and Section 19 of the CGST Act is the provision that lets you keep the input tax credit on goods that are sitting in somebody else's factory.

Start with the problem it solves. One of the conditions for credit in Section 16 is that you must have received the goods. If you send steel to a job worker, or have your supplier deliver it straight to him, you never physically receive it. Section 19 removes that difficulty. CBIC put it plainly in Circular No. 38/12/2018 dated 26 March 2018: the principal is eligible to take credit irrespective of whether the inputs or capital goods are first received by him and then sent on, or are received directly at the job worker's premises.

The credit is not unconditional. The goods must come back, or be supplied onward from the job worker's place, within one year for inputs and within three years for capital goods. Miss the deadline and the law treats the original despatch as a supply by you on the day the goods went out, with tax and interest running from that date. Moulds, dies, jigs, fixtures and tools sent out are outside this time limit.

The paperwork is simple but must be done. Goods move on a delivery challan issued under Rules 45 and 55 of the CGST Rules, in triplicate, and an e-way bill is needed for consignments above fifty thousand rupees, and for inter-State movement to a job worker whatever the value. You then report the movements in Form GST ITC-04. The periodicity changed from October 2021: half-yearly for a business with aggregate turnover above five crore rupees, annually for one below it. The GST portal's own guide sets this out at https://tutorial.gst.gov.in/userguide/inputtaxcredit/Manual_itc04.htm

Two practical points follow. The job worker does not need registration merely because he is doing job work; he registers only if his own turnover crosses the threshold, and that is so whether he is in Tamil Nadu with you or in another State. And if you sell the finished goods directly from his premises, that supply is yours, not his: you raise the invoice and you decide time, value and place of supply. Doing that requires the job worker's premises to be declared as your additional place of business unless he is registered.

Read this with Section 143, which sets out the job work procedure itself, and with Sections 16 and 17 on the conditions for credit and blocked credits, covered in instalments eleven and twelve. The circular is at https://cbic-gst.gov.in/pdf/circularno-38-cgst.pdf

Next in this series: Section 31, the tax invoice.

Topics:section 19 CGSTjob work GSTITC on job workITC-04delivery challan job workone year job workthree year capital goodsCircular 38/12/2018section 143 CGSTjob worker registrationGST basicsChennai

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