The most significant risk in job work transactions is the failure to return goods within the prescribed time limit. If inputs are not returned within one year or capital goods within three years, they are deemed to have been supplied by the principal to the job worker on the date they were sent.
This article explains the consequences and compliance steps.
The Deemed Supply Mechanism
Section 143(3) provides that if inputs or capital goods are not received back by the principal within the prescribed time limit, they are deemed to have been supplied by the principal to the job worker on the day when the inputs or capital goods were sent out.
GST Liability
The principal must:
- Pay GST on the value of the goods.
- Issue a tax invoice for the deemed supply.
- Pay interest at 18% from the original dispatch date.
Value for GST
The value of the deemed supply is:
- The fair market value of the inputs at the original dispatch date, or
- The value at which they were recorded in the principal’s books on dispatch.
Impact on ITC
The deemed supply does not affect the ITC already claimed on the inputs. However, if the goods are not returned, the principal loses the ability to use them in further manufacturing.
Practical Steps
- Track the time limit for each dispatch.
- Apply for extension before the time limit expires.
- Pay GST and interest if the time limit lapses.
- Maintain proper records of all dispatches and returns.
Conclusion
The deemed supply consequence is serious and results in immediate GST and interest liability. Businesses must track job work time limits meticulously and apply for extension where required.
At Anuj Desai & Associates, we provide expert advisory services on GST job work time limits and deemed supply. Our team can help you manage deadlines and avoid liability.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.