The Impact of GST on Outsourcing the Manufacturing Work

With GST being rolled out this July, there are many speculations about its impact on different industries. Every manufacturer in the Country tends to outsource certain part of the manufacturing work, and this allows the manufacturer to concentrate on their core competencies as well as save on the capital expenses. The larger the manufacturing process, the more it is outsourced. Huge manufacturing companies tend to outsource various production processes for different manufacturers. This is a highly cost effective method to save on huge expenses. The country’s SME industry consists of a large number of industries involved in job work. With the implementation of GST, the impact of outsourcing will be significant for the companies. 

Currently, job work means working on the raw material supplied by the manufacturer and carrying out the processes that lead to the manufacture or finishing of an article. This implies that the completion of goods should be an important aspect of the process. Under GST, job work means any treatment taken out by a person on the goods belonging to another person. It includes all the activities done by a person irrespective of its completion or not. This is a broader perspective as compared to the current regime. Another major change is the requirement of the goods to belong to the registered taxable person. To be considered as job work, it is important that the person to whom the goods belong, is registered as a taxable entity.

Further, under the current regime, manufacturing is the taxable point and under GST,  supply will be the taxable point. Job work, under GST will be classified as the Supply of Service and GST will be payable on the processing charges charged by the job worker. The definition of job work has been expanded and it is considered as an act of service supply.

It will be important for the worker and the principal to maintain all the details about the goods sent for job work and the stock held by the job worker on the date of implementation of GST. Such details will help in quick transition to GST and will help avoid the tax burden on principal manufacturer. With a broader definition of GST, it will be a cushion for the job worker and it will also remove the burden of existing indirect tax. GST aims to make the entire process simpler with easy documentation. After the transition, it will become much easier to record and report the same.