Procedures for Issuing Returnable Delivery Challan for Job Work

With the introduction of the Goods and Services Tax (GST) on July 1, 2017, Central Excise on most goods was integrated into GST, shifting the focus to a unified tax system. Nevertheless, the concept of returnable delivery challan from Central Excise has directly influenced GST provisions, particularly under Rule 55 of the CGST Rules, 2017. This rule prescribes the use of delivery challans for non-supply movements, such as job work under Section 143, sale-or-return, or exhibitions. Let us now explore the procedure that the principal must follow for removing GST-paid goods for job work.

Overview of Job Work Under GST

Clause (68) of Section 2 of the Central Goods and Services Tax Act, 2017, defined the term "job work" as any treatment, processing, or operation carried out by an individual or entity (referred to as the "job worker") on goods that belong to another person who is registered under the GST regime. The job worker is the individual or entity responsible for carrying out specific processes or treatments on goods provided by another party. These processes could include activities such as manufacturing, assembling, packaging, testing, or any other form of processing that enhances or modifies the goods as per the requirements of the owner. The principal is the person who owns the goods and supplies them to the job worker for processing.

The transaction between the principal and the job worker falls under the scope of supply as prescribed under Section 7, read with Schedule II of the CGST Act, 2017. This means that the job work services (as per Schedule II) provided by the job worker to the principal are subject to GST. The job worker typically issues an invoice for the services rendered, and GST is levied on the value of the job work charges as per the applicable GST rates. While job work transactions are generally taxable, Section 143(1) of the CGST Act provides for the movement of goods from the principal to the job worker without tax payout, to facilitate ease of operations for businesses. In other words, this section allows a registered principal to send inputs (raw materials, components, etc.) or capital goods (machinery, equipment, etc.) to a job worker for processing without payment of GST at the time of dispatch, subject to specified conditions.

To avail this benefit, the principal must comply with the conditions specified under Section 143, such as intimating the jurisdictional officer and ensuring that the goods are returned to the principal (or supplied directly from the job worker's premises to another person on the principal's instructions) within the stipulated time frame:

• Inputs: Must be returned within one year from the date of dispatch to the job worker.
• Capital Goods: Must be returned within three years from the date of dispatch.

If the goods are not returned within these time limits, the transaction is treated as a supply, and GST becomes payable on the value of the inputs or capital goods.

To facilitate trade, the Central Board of Indirect Taxes and Customs (CBIC), vide Circular No. 38/12/2018 dated 26th March 2018, clarified the procedural aspects relating to the issuance of challans, furnishing of intimation and other documentary requirements in this regard. This process ensures seamless tracking of goods sent for job work while maintaining compliance with GST regulations. The triplicate and duplicate challan system facilitates proper documentation, and FORM GST ITC-04 acts as a consolidated report to inform the tax authorities about the movement of goods. The principal must maintain meticulous records to avoid tax liabilities in case of delays or non-return of goods.

The detailed discussion on the movement of the goods in each situation is explained below:

Situation 1: Goods Sent to a Single Job Worker and Returned After Job Work

In this scenario, the principal sends goods to a single job worker for processing, and the goods are returned after completion of the job work.

Procedure

1. Preparation of Delivery Challan & Waybill:
   • The principal prepares a returnable delivery challan in triplicate as per Rules 45 and 55 of the CGST Rules.
   • The challan must include details such as the description, quantity, value of goods, and a statement indicating that the goods are sent for job work without payment of tax.
   • The principal should also ensure that before the outward movement of goods, the details of the delivery challan are reported in the E-Way Bill portal, and a valid E-Way Bill copy is generated.
   • Two copies (original & duplicate) of the delivery challan are sent along with the goods to the job worker.
   • The third copy is retained by the principal for record-keeping for filing the intimation in the prescribed form.
2. Return of Goods:

In Full:

After completing the job work, the job worker returns the processed goods to the principal, endorsing a duplicate copy of the delivery challan sent by the principal. The returned goods must be accompanied by this duplicate copy to ensure proper documentation of the transaction.

Piecemeal Return or Further Movement:

If the goods are returned in parts (either to the principal or to another job worker), the original challan cannot be endorsed for partial quantities. In such a situation, the job worker must issue a fresh delivery challan for each partial movement, referencing the principal's original challan number and date. The job worker returns a copy of the principal's duplicate delivery challan along with the last instalment of goods, ensuring all movements are documented.

1. Maintenance of Job Work Register:

The Job Work Register is one of the vital records, used by the principal to track goods sent to a job worker for processing and their return, ensuring compliance with Section 143 of the CGST Act. It documents details, such as delivery challan number, date, job worker's GSTIN, goods description, HSN code, quantity, value, and nature of job work. The register records dispatch and return dates, including partial returns with fresh challans referencing the principal's original challan. It helps monitor compliance with return timelines, one year for inputs and three years for capital goods, to avoid treating non-returned goods as taxable supplies. The principal uses the register to file FORM GST ITC-04, reporting goods sent, returned, or pending.

Accurate maintenance prevents ITC loss, tax liabilities, and audit issues. Non-compliance may lead to GST payment with interest. The register thus ensures transparency and operational control.

1. Filing of FORM GST ITC-04:

The principal uses the details from the delivery challan and the returned goods to file FORM GST ITC-04, which serves as the intimation required under Section 143. This form reports the details of goods sent to the job worker, goods returned, and any goods still with the job worker.

1. Non-Compliance Consequences:

If the goods are not returned to the principal within the prescribed time (one year for inputs, three years for capital goods), the transaction is treated as a taxable supply.

The taxable value mentioned in the delivery challan is considered the assessable value, and the principal must pay the applicable GST along with interest from the due date until the date of payment.

The transaction between the principal and the job worker falls under the scope of supply as prescribed under Section 7 read with Schedule II of the CGST Act, 2017. This means that the job work services (as per Schedule II) provided by the job worker to the principal are subject to GST.

Situation 2: Goods Sent for Further Processing from One Job Worker to Another

Under the "Bill to Ship to" arrangement, goods are transported directly from the supplier's facility to the job worker's premises, bypassing the principal's location. In this model, the supplier issues an invoice to the principal (the "bill to" entity), while the goods are physically shipped to the job worker (the "ship to" entity) for processing or further work. This streamlined approach optimizes logistics by eliminating the need for intermediate storage or handling at the principal's location.

Furthermore, this scenario extends to cases involving imported goods. When goods are brought into India, they are cleared at a customs station and, instead of being routed to the principal's warehouse or facility, are directly dispatched from the customs station to the job worker's location for processing. This direct shipment from the customs station ensures efficiency in the supply chain, reducing transit time and costs while enabling the job worker to commence operations promptly.

In such cases, the principal is expected to follow the process given below:

Procedure

1. Preparation of Delivery Challan:

i. Domestic purchase:

• In this method, the supplier issues an invoice naming the principal as the buyer and the job worker as the consignee, as per Rule 46 (o) of the CGST Rules. This ensures that the principal is recognized as the owner of the goods for ITC purposes.
• Hence, the principal prepares a returnable delivery challan in triplicate under Rule 45 and sends two copies to the job worker after the goods reach. The challan details the goods being sent for job work and references the supplier's invoice.
• The third copy is retained by the principal for record-keeping for filing the intimation in the prescribed form.
• No E-way Bill is required to be prepared by the principal since no movement of goods was undertaken by him. However, the supplier might have issued the tax invoice and E-Way bill for the movement of goods to the job worker's location under the "Bill to Ship to" mode.
• The principal files a Bill of Entry at the customs station to clear imported goods intended for job work, ensuring compliance with customs regulations and facilitating the release of goods for further processing.
• After customs clearance, the principal prepares a delivery challan in triplicate as per Rule 45 of the CGST Rules, 2017, using the "Bill from and Dispatched from" method.
• The principal generates an E-way Bill under GST rules, referencing the delivery challan, to authorize the movement of goods from the customs station to the job worker.
• The goods are transported from the customs station to the job worker under the cover of the delivery challan, which specifies the goods sent for job work and references the Bill of Entry. This ensures a clear audit trail and compliance with GST regulations.
• Two copies of the delivery challan, along with a copy of the E-way Bill, are sent to the job worker to accompany the goods. The job worker endorses one copy upon receipt and returns it to the principal with the processed goods, while the second copy is retained by the job worker for their records.

(For the remaining procedure, please refer to points (b) to (e) of Situation I.)

If the goods are not returned to the principal within the prescribed time (one year for inputs, three years for capital goods), the transaction is treated as a taxable supply.

Situation 3: Goods Sent from One Job Worker's Location to Another Job Worker's Location

Goods are sent from one job worker to another when a principal engages multiple job workers to perform sequential or specialized processes on the same goods, such as cutting, dyeing, and stitching for textiles. This is common in industries, such as manufacturing, textiles, or electronics, where different expertise or equipment is needed at each stage. The need arises to optimize production efficiency, leverage specialized skills, or utilize specific machinery available at different job worker locations. The first job worker, after completing their task, transfers the goods to the next job worker under a fresh delivery challan, referencing the principal's original challan to maintain traceability. An E-way Bill is generated to authorize the movement, ensuring GST compliance. This process allows the principal to streamline complex production without moving goods back and forth unnecessarily. Accurate documentation prevents Input Tax Credit loss and potential tax liabilities. This multi-job worker process enhances operational flexibility while adhering to GST regulations. The principal needs to ensure the following procedure is followed when the goods are sent from one job worker's location to another:

• The principal issues a fresh delivery challan for the movement of goods from the first job worker to the second job worker, referencing the original challan.
• The first job worker can issue their own delivery challan, referencing the principal's original challan, or endorse the principal's challan by specifying the quantity and description of goods being sent to the next job worker.

(For the remaining procedure, please refer to points (b) to (e) of Situation I.)

By adhering to Rules 45 and 55 and filing FORM GST ITC-04, the principal can claim ITC on goods sent for job work, even when they are not in their possession.

Conclusion

The procedures for issuing a returnable delivery challan under the CGST Act, 2017, are designed to facilitate the movement of goods for job work while ensuring compliance with GST regulations. By adhering to Rules 45 and 55 and filing FORM GST ITC-04, the principal can claim ITC on goods sent for job work, even when they are not in their possession. The processes outlined for each scenario, single job worker, multiple job workers, direct supply to job worker, and piecemeal returns, provide a robust framework for managing job work transactions. Proper documentation, timely return of goods, and accurate reporting are critical to avoid tax liabilities and ensure compliance with the GST law.