Job Work Stock

What Is Job Work Stock?

Manufacturing rarely happens entirely under one roof. Components go out for machining, fabric goes out for dyeing, and castings go out for finishing, and in each case the sender keeps ownership while somebody else does the work. The processor holds the material as a bailee, may deal with it only as instructed, and must return it or whatever it becomes.

Under GST the movement travels on a delivery challan rather than an invoice, and the return timelines carry a real consequence. Inputs have to come back within the prescribed period and capital goods within their own longer one, and material not returned in time is treated as having been supplied on the day it originally left, with tax payable accordingly. That is why an aged balance at a processor is a tax exposure and not merely an untidy reconciliation. Verification is complicated by the fact that a processor working for several senders holds physically similar material for each, so segregation is the first thing examined on arrival.

Job Work Stock Under Indian Law

Position: a principal may send inputs or capital goods to a job worker without payment of tax, moving on a challan issued for the purpose instead of a tax invoice. Inputs must be received back or supplied onward within one year, and capital goods within three years.

• Where goods are not returned within the applicable period, the transfer is treated as a supply made on the day the goods were originally sent out, and tax becomes payable with interest from that date.
• Source: section 143 of the Central Goods and Services Tax Act 2017, with the delivery challan requirement in rule 55 of the CGST Rules 2017.
• Note: the periods can be extended by the Commissioner, by a further year for inputs and two years for capital goods, on cause being shown. The extension is not automatic and has to be sought.

Who Owns the Stock Under Job Work Stock

The sender owns the material throughout, and the processor never acquires any interest in it.

• Custody moves and title does not, because nothing has been sold. Holding it in trust, the processor is confined to the instructions given and remains answerable for every unit.
• It remains within the sender's inventory, flagged as sitting on somebody else's premises, and never appears in the processor's own accounts.
• The evidence is the challan under which it travelled, which describes the material and the work required and is deliberately not an invoice.
• Output made from it belongs to the sender as well, along with recoverable scrap where the arrangement provides for its return.
• The tax position is separate from the ownership one: material not returned within the statutory period is deemed supplied on the original despatch date even though title never moved.

How Job Work Stock Works in Practice

1. A challan is issued setting out what is being sent, how much, and what work is wanted, and the consignment moves on that document instead of an invoice.

1. Ownership stays with the principal throughout. The material remains in the principal's inventory, disclosed as held at a third party, and is excluded from the processor's own stock entirely.

1. The processor performs the operation and returns the output, again under a challan, together with any unused material and, where the arrangement requires, the recoverable scrap.

1. The principal reconciles the movement: material sent, less material consumed in what came back, less material returned unprocessed, should equal the balance still lying at the processor, with process loss inside the agreed allowance.

1. Statutory return periods are tracked, because anything still outstanding when the permitted window closes is deemed supplied as at the original despatch date.

Job Work Stock: A Worked Example

An Indore engineering unit sends material out for processing under a challan and expects it back in an agreed form.

Ownership never moves, so all Rs 28.60 lakh remains the sender's stock and belongs in the closing figure even though none of it is on site. Two of the three lines behave differently. Dyeing loses 5% of the yarn as an accepted process loss, so a shortfall there is expected and is written into the challan. The 120 unreturned castings are not a process loss and are either scrap the vendor should have returned or material unaccounted for. Tracking is by challan and by ageing: material outstanding beyond the agreed period is the first place a shortfall is found.

Common Mistakes With Job Work Stock

The tax consequences are what turn an untidy balance into an expensive one.

• Letting material sit at a processor beyond the permitted period, at which point the law deems a supply to have occurred on the despatch date, and tax falls due on it.
• Removing the material from the books on despatch, when ownership never transferred and the goods remain the sender's asset.
• Moving goods without a delivery challan, or without the e-way bill where the value requires one, which leaves the movement unsupported.
• Accepting the processor's confirmation as verification of a material or long-outstanding balance, when only a physical count establishes that the goods exist.
• Reconciling the balance as a single figure rather than separating material awaiting work, material in process, finished output and scrap, which is where the process loss actually shows.

Related Stock Audit Terms

Completed intermediates held for later use sit next to it on the same floor, so sub-assembly stock is the entry to read next. Every other term in this cluster is listed in the stock audit glossary, grouped by the part of the work it belongs to.