RCM on job Work From Unregistered Person

RCM on job Work From Unregistered Person

This article “RCM on job work from unregistered person” unpacks the RCM on job work from unregistered person” as it applies to job work services performed by unregistered persons. You’ll learn the key GST provisions—most notably Section 9(4) of the CGST Act—how initial threshold exemptions evolved through various notifications, and why, ultimately, RCM on job work from unregistered suppliers is fully effective. We also cover vital compliance pointers—issuing self-invoices under Rule 47 and the new Rule 47A, timing of tax payments and ITC claims—and highlight recent clarifications, Circular and the 53rd GST Council meeting in June 2024.

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What Is Job Work under GST?

Job work refers to any treatment or process undertaken by a person on goods belonging to another registered person. In practice, a principal sends goods to a job worker for further processing, and those goods are returned once work is completed .

Under GST, job work is classified as a supply of service, even though the goods themselves are not “sold.” Understanding this distinction is crucial because it determines when and how GST applies.

Understanding the Reverse Charge Mechanism (RCM)

Under normal circumstances, the supplier issues the invoice and remits GST. Reverse Charge Mechanism flips this: the recipient—rather than the supplier—must pay GST directly to the government .

Section 9(4) of the CGST Act explicitly covers supplies of goods or services by unregistered persons to registered recipients, making the recipient liable under RCM.

RCM on Job Work from Unregistered Persons

Legal Framework: Because job work is a service, unregistered job workers fall squarely under Section 9(4) when supplying to a registered principal .

Furthermore, Notification No. 13/2017-Central Tax (Rate) enumerates services that attract RCM, including “manufacturing services on physical inputs (goods) owned by others,” which covers most job work activities .

Circular No. 126/45/2019 confirms that “services by way of job work” (other than specifically exempted categories) are under RCM .

Notification Timeline and Threshold Exemptions

• Notification No. 8/2017-Central Tax (Rate) (28 June 2017) exempted intra-state supplies of goods or services from unregistered persons up to ₹5,000 per day, effective 1 July 2017 .
• Subsequent amendments (Notns. 38/2017, 10/2018, 12/2018, 22/2018) extended this ₹5,000-per-day exemption deadline up to 30 September 2019 .
• Post-exemption: Beyond that date, RCM under Section 9(4) applies to all supplies from unregistered persons—job work included—without any monetary threshold .

Initially, all unregistered-to-registered supplies (including job work) were automatically liable to RCM until the limited exemptions took effect . From 1 February 2019, RCM on unregistered supply became fully enforceable across both intra-state and inter-state transactions .

Recent Updates: Notifications & Circulars

• Circular No. 211/5/2024-GST (January 2024) clarifies that to claim ITC on RCM supplies from unregistered persons, the recipient must possess a proper tax-paying document—typically a self-invoice or debit note .
• In the 53rd GST Council meeting (22 June 2024), it was recommended that, for RCM supplies where the recipient issues the invoice, the relevant financial year for ITC purposes is the year in which the self-invoice is issued .
• Rule 47A (effective 1 November 2024) mandates that self-invoices for RCM supplies from unregistered persons must be generated within 30 days of receipt of goods or services, strengthening the timelines under Rule 47 and (New Regulation on RCM Self Invoicing effective from November 1, 2024).

Practical Tips for Businesses

• Issue Self-Invoices Promptly: Follow Rule 47(1) & (3)(f) and the new Rule 47A: generate a self-invoice within 30 days of receiving the job work service.
• Report Correctly in Returns: Disclose RCM liabilities in Table 3.1(b) of GSTR-3B under “Reverse Charge on Services.”
• Pay Tax on Time: Deposit RCM tax by the 20th of the next month (or the due date of GSTR-3B) to avoid interest.
• Maintain Documentation: Keep copies of self-invoices, payment challans, and job work contracts to substantiate ITC claims.
• ITC Reconciliation: Claim ITC on RCM only when you have the self-invoice and proof of payment, and within the prescribed time limit (by the due date of September monthly return of the following FY).

Real-Life Example: Scenario

A clothing manufacturer (registered) sends fabric worth ₹200,000 to an unregistered job worker for detailing and finishing.

1. Service Receipt Date: 15 March 2025
2. Self-Invoice: Must be issued by 14 April 2025 (Rule 47A).
3. GST Liability: 18% of ₹200,000 = ₹36,000 to be paid by the manufacturer in April 2025 GSTR-3B.
4. ITC Claim: Available once self-invoice is in hand and tax paid, claimed in April 2025 return.

Staying on top of these rules ensures smooth GST compliance and avoids interest or penalties. If you handle job work from unregistered persons, build these steps into your routine—prompt self-invoicing, timely tax payment, and meticulous record-keeping—to keep the GST machinery running smoothly.

FAQs

Q1: Does RCM apply when a job worker is unregistered?

Yes. Services by an unregistered job worker to a registered principal fall under Section 9(4) RCM .

Q2: What documents are needed for ITC on RCM supplies?

A self-invoice or debit note issued by the recipient (as per Rule 47 and Rule 47A) and proof of payment are mandatory .

Q3: When must a self-invoice for job work under RCM be issued?

Within 30 days from receipt of services, effective 1 November 2024 under Rule 47A (New Regulation on RCM Self Invoicing effective from November 1, 2024).

 Read More: Time limit for return of goods sent for job work under GST

                       :  Invoice Management System in GST (IMS)