GST on job work: a practical guide for manufacturers

Most manufacturers in Satpur, Ambad and Sinnar send part of their work to outside units for machining, heat treatment, plating or assembly. Section 143 of the Central Goods and Services Tax Act, 2017, read with rule 45 of the CGST Rules, allows a registered principal to move inputs and capital goods to such a job worker without tax on dispatch. The goods travel under a challan, and each movement is reported on the GST portal in Form ITC-04.

Time governs the facility. Inputs must be returned, or supplied from the job worker's premises, within one year of dispatch; capital goods have three years. When a limit is missed, the goods are treated as supplied on the day they left the factory, and tax becomes payable with interest from that date. The notice on such a lapse may arrive years later. The law is stated here as at 1 October 2026.

This guide is written for factory owners and finance heads, and for the accountants who handle job work each day. It explains the procedure and the time limits, and then the way the paperwork should be kept so that it can be defended in an audit.

In short

• A registered manufacturer may send inputs and capital goods to a job worker without paying GST, under a challan.
• Inputs must come back, or be supplied from the job worker's premises, within one year. Capital goods have three years. Moulds, dies, jigs, fixtures and tools have no time limit.
• Goods that miss the limit are treated as supplied on the day they left your factory, with tax and interest.
• Every movement is reported in Form ITC-04: half-yearly if last year's turnover was above ₹5 crore, annually otherwise.
• Most notices arise from records that do not match: challans, ITC-04, e-way bills and stock.

1. What counts as job work

Section 2(68) of the CGST Act defines job work as "any treatment or process undertaken by a person on goods belonging to another registered person". The wording has three consequences.

The goods must first belong to someone else: the job worker processes your material, and ownership remains with you throughout. Next, the owner must be a registered person, since section 143 is open only to a registered principal. Finally, its use is optional. CBIC has clarified that section 143 is a facility which the principal may choose to use (Circular 38/12/2018-GST). If its conditions are not followed, the movement is judged under the ordinary rules of supply.

A job worker may add its own consumables, for example cutting oil, inserts or chemicals, and the activity can still be job work. Whether a given activity qualifies depends on the facts of each case.

2. The section 143 procedure in brief

Section 143(1) allows a registered principal, under intimation and subject to conditions, to send inputs and capital goods to a job worker without paying tax. The goods may then pass to a second job worker, and onward. Once the work is complete, the principal must take one of two steps within the time limit:

• bring the goods back to any of its own places of business, without paying tax; or
• supply them directly from the job worker's premises, paying tax in India, or without tax if exported under the export rules.

For this purpose "inputs" includes intermediate goods produced by processing. A machined casting that is still short of a finished part remains an input.

Section 143(2) places the duty to keep proper accounts of goods sent for job work on the principal. For a finance team, this is the single most important sentence in the section.

Input tax credit is protected. Under section 19 the principal may take credit on inputs and capital goods sent to a job worker, and this includes inputs delivered straight from the supplier to the job worker. In that case the time limit starts on the date the job worker receives them.

3. The time limits, and what happens when goods do not return

Where inputs or capital goods are neither returned nor supplied within the limit, section 143(3) and (4) treat them as supplied by the principal to the job worker on the day they were first sent out. Rule 45(4) of the CGST Rules then requires the principal to declare that supply in Form GSTR-1 and to pay the tax with interest.

Interest is the larger concern. Since the supply is dated back to the day of dispatch, interest under section 50 runs from the date the tax would have been due for that month. The expiry of the limit is irrelevant to this calculation. CBIC's Circular 38/12/2018 (para 9.6) states it directly: the date of supply is the date the goods were first sent, "and interest for the intervening period shall also be payable". A shortfall discovered after a year has therefore already carried about a year of interest at 18% per annum.

In practical terms, an open challan is a liability with a fixed date. One named person should be responsible for the ageing list of goods at job workers, and that list should be reviewed each month.

4. Challans: the document that carries the goods

Goods sent for job work travel under a challan. Rule 45(1) requires the principal to issue it, with the particulars listed in rule 55. Among these are the challan number and date, the names, addresses and GSTINs of both parties, and the HSN code. The description, quantity and taxable value are also required.

The working practice is set out in CBIC's circular:

• The principal prepares the challan in triplicate. Two copies go with the goods, and the job worker returns one with the processed goods.
• When goods pass from one job worker to another, either party may issue a challan, or the job worker may endorse the original.
• When the job worker returns goods in part lots, the original challan cannot be endorsed, so a fresh challan is issued for each lot.
• When your supplier ships material straight to the job worker, the supplier's invoice names you as buyer and the job worker as consignee. You still issue a challan to the job worker.

Reconciliation most often fails at part-lot returns. Suppose a Sinnar machine shop returns 4,700 of 5,000 pieces in three trucks. Three documents now exist, and each must be traced to one outward challan.

5. Form ITC-04

Form GST ITC-04 is the principal's statement of goods sent to job workers, received back from them, or moved between them. It also serves as the "intimation" that section 143 requires.

This position has applied since 1 October 2021 (rule 45(3), as amended by Notification 35/2021-Central Tax). The form was quarterly before then. A due date may be extended by the Commissioner through notification.

Four kinds of entry appear on the form. These are challans for goods sent out and goods received back (including losses and waste). Goods moved from one job worker to another, and goods supplied directly from a job worker's premises, are also reported. The GST portal accepts no statement without entries, so a period with no movement requires no filing.

Because ITC-04 is outside the returns covered by section 47, no daily late fee of the GSTR-3B kind applies. The form is still mandatory. If it is missing or wrong, you lose the evidence that the goods moved under section 143 at all. The general penalty under section 125 may also apply: up to ₹25,000 under the CGST Act, and the same amount under the Maharashtra GST Act.

6. The job worker's GST position

What a job worker supplies is a service, classified under heading 9988 as manufacturing services on physical inputs owned by others. GST is charged on job charges, and the principal takes credit for it in the normal way.

Rate. The rate structure for job work was rationalised from 22 September 2025. Listed sectors such as textiles and food products keep concessional rates. Most other job work is now taxed at 18%, and engineering processes like machining fall in this group. Before a rate is relied on, the entry for the job worker's specific process should be checked.

Registration. A job worker must register only when its own aggregate turnover crosses the threshold, which is ₹20 lakh for a service provider in Maharashtra. The principal's location makes no difference, because inter-state suppliers of services below the threshold are exempt from compulsory registration.

Turnover. The Explanation to section 22 treats goods supplied by a registered job worker after completing the work as the principal's supply. Their value is therefore excluded from the job worker's turnover, and only the job charges count.

7. Scrap and waste

Borings and turnings come from machining. Pressing leaves offcuts, and plating leaves sludge. Under section 143(5), waste and scrap that arise at the job worker's premises may be supplied:

• by the job worker, directly from its premises, paying GST, if the job worker is registered; or
• by the principal, paying GST, if the job worker is not registered.

Two practical points follow. First, ITC-04 should account for losses and waste, so that the quantity sent out equals the quantity received plus scrap. Second, the agreed process loss belongs in the job work order. An officer will usually ask first about any gap between input and output that has no explanation.

8. Supplying direct from the job worker's premises

A principal may raise an invoice on a customer and dispatch the goods straight from the job worker's unit. The supply remains the principal's own (section 143(1)(b), confirmed in Circular 38/12/2018).

One condition requires attention. The job worker's premises must be declared as your additional place of business, unless:

• the job worker is registered; or
• the goods supplied have been notified by the Commissioner for this purpose.

A frequent defect is direct shipment from an unregistered job worker's unit without that declaration.

9. E-way bills

Rule 138 requires an e-way bill for goods moved for job work, although the movement is not a supply.

• Inter-state movement to a job worker: an e-way bill is needed whatever the value, and it is generated by the principal or by a registered job worker.
• Intra-state movement: the state threshold applies. Maharashtra requires an e-way bill for intra-state movement above ₹1,00,000 (Maharashtra Notification 15E/2018-State Tax). Its single job-work exemption covers yarn, fabric and garments moved within 50 km, so engineering work gets no benefit from it.
• When the job worker is unregistered, the e-way bill is generated by the principal.

The department can see e-way bill data, and it is matched as a matter of routine against ITC-04 and stock records.

10. A worked example: an Ambad castings line and a Sinnar machine shop

The figures are illustrative. No real business is described.

An auto-components manufacturer in Ambad MIDC buys grey iron castings and sends them for machining to a registered job worker in Sinnar MIDC. Its aggregate turnover for 2025-26 was ₹42 crore, so ITC-04 is filed half-yearly in 2026-27.

10 April 2026. It dispatches 5,000 castings at ₹320 each, worth ₹16,00,000, under challan JW/26/014 in triplicate. Both units are in Maharashtra and the value exceeds ₹1 lakh, so the truck carries an e-way bill. On the same day a set of machining fixtures is sent under a separate challan.

May to August 2026. The job worker sends back 4,700 machined pieces in three lots, together with 100 rejected castings. Every lot travels on a fresh challan from the job worker that refers to JW/26/014.

Job charges. At ₹45 a piece for 4,700 pieces, the job worker bills ₹2,11,500 plus GST at 18%. The tax is ₹38,070 (CGST ₹19,035 and SGST ₹19,035), and the manufacturer takes credit for it.

Scrap. Because it is registered, the job worker sells the cast-iron borings itself and charges GST on the sale.

ITC-04 for April–September 2026, due 25 October 2026. The return shows the 5,000 castings and the fixtures sent out. It also shows the 4,700 pieces and 100 castings received back, with the machining loss.

The 200 pieces still at Sinnar. The ageing report on 30 September shows 200 castings, worth ₹64,000, still at the job worker. Their one-year limit ends in April 2027. Before then the manufacturer has three options:

1. bring them back, machined or not;
2. supply them from Sinnar to a customer on a tax invoice; or
3. apply to the Commissioner for an extension, with reasons.

If no step is taken, the 200 castings are treated as supplied on 10 April 2026. At an assumed GST rate of 18% on the castings, the tax is ₹11,520, declared through GSTR-1. Interest from the original due date would add roughly ₹1,900 if payment is made in late April 2027. (The rate on castings depends on their classification, and 18% is used here only for illustration.)

No return period applies to the fixtures. They remain on the ITC-04 and in the fixed-asset register until they come back.

11. The mistakes that lead to notices

• Ageing nobody watches. Inputs pass the one-year mark unnoticed, and the deemed supply is never declared.
• Challans that do not tie up. Part-lot returns go on the original challan, carry no reference back, or show quantities that do not reconcile.
• ITC-04 not filed, or filed with gaps. No record then exists that the goods moved under section 143.
• Tax invoices used in place of challans, so a non-supply looks like a sale, or the reverse.
• Process loss never agreed. The input-output ratios cannot be explained.
• Scrap sold without tax, or sold by an unregistered job worker in its own name.
• Direct supplies from an unregistered job worker's unit without declaring it as an additional place of business.
• E-way bills missing for inter-state job work, on the mistaken belief that low-value consignments are exempt.

What this means for a manufacturer

• Keep a job work register by job worker and by challan, showing the date each challan reaches one year (inputs) or three years (capital goods).
• Review the ageing list every month. Any item older than ten months needs a decision.
• Write the process loss and scrap terms into every job work order.
• Require a fresh challan for every part lot from the job worker, quoting your original challan number.
• Reconcile ITC-04, e-way bills, GSTR-1 and the stock ledger before each ITC-04 due date.
• Check each job worker's GST registration status once a year. It decides who generates e-way bills and who sells scrap, and whether you may ship direct.
• Record moulds, dies and fixtures in a location register, although no time limit applies to them.

This article is general information on the law as at 1 October 2026 and is not advice on any particular case. GST rates, thresholds and forms change; check the current notification before acting.