Reverse Charge Mechanism (RCM) on job work services supplied by an unregistered person (job worker)

Reverse Charge Mechanism (RCM) on job work services supplied by an unregistered person (job worker) to a registered person (principal) under the GST law.


⚖️ 1. Legal Provision

Under Section 9(4) of the CGST Act, 2017 and the relevant notifications,
the general rule is that supplies from an unregistered person to a registered person are not taxable under RCM, except when specifically notified.

However, job work has a special rule:

Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017,
specifies “Services by way of job work” supplied by an unregistered person to a registered person as taxable under RCM.

👉 Therefore:

If an unregistered job worker provides job work service to a registered principal → RCM applies.

🧾 2. Who Pays GST under RCM?

Party Registration Status RCM Applicability Who Pays GST
Principal (recipient) Registered ✅ Yes Principal
Job worker (supplier) Unregistered ✅ Covered –

The principal (registered supplier) must:

  • Pay GST on job work charges under RCM,

  • And can claim ITC of that same tax (if used for taxable/zero-rated supplies).

💰 3. Tax Rate under RCM (Job Work Services)

Type of Job Work GST Rate (RCM)
Job work on textiles, garments, apparel, fabrics, yarn 5%
Job work on metals, machinery, tools, etc. 12% or 18% (based on nature)
Job work relating to printing, cutting, polishing, assembling, etc. As per relevant HSN 9988

🔹 Use SAC 9988 (Manufacturing Services on Physical Inputs owned by Others).

🧮 4. Example

Scenario:

  • Registered principal (Mr. Manoj C / Pallassana Chandran Kathikal) sends blades to an unregistered job worker for sharpening.

  • Job work charges = ₹10,000

  • Applicable GST rate = 12%

Calculation:

Particular Amount (₹)
Job work value 10,000
GST @12% (RCM) 1,200
Total GST payable under RCM ₹1,200

Principal pays ₹1,200 under RCM and can claim ITC in the same month.

📘 5. Accounting Treatment

Entry Debit (₹) Credit (₹)
Job work expense 10,000
CGST payable under RCM 600
SGST payable under RCM 600
To Job worker 10,000
To GST Output Liability (RCM) 1,200

After paying GST in cash:

Entry Debit (₹) Credit (₹)
Input CGST 600
Input SGST 600
To GST Liability 1,200

📄 6. Documents Required

Document Issued by Purpose
Delivery Challan (Rule 55) Principal For sending goods to job worker
Job Work Bill/Receipt Job worker (unregistered) Non-GST bill for labour charges
Self-invoice (Rule 46) Principal Since supplier is unregistered
Payment Voucher Principal Record of payment to job worker

🧾 Both “Self-Invoice” and “Payment Voucher” are mandatory under RCM.

📋 7. Return Reporting

Form Who Files Where to Report
GSTR-3B Principal

  • Table 3.1(d): Tax under RCM

  • Table 4A(3): ITC on inward supplies liable to RCM |
    | GSTR-1 | Principal | Not required for RCM |
    | ITC-04 | Principal | Goods movement to/from job worker |

⏳ 8. Time Limit for Return of Goods (Section 143)

Type of Goods Must Return Within If not returned
Inputs 1 year Treated as supply → GST payable
Capital goods 3 years Treated as supply → GST payable

⚠️ 9. Key Compliance Points

✅ Job worker can remain unregistered if total turnover < ₹20 lakh (₹40 lakh for goods).
✅ Principal must issue Delivery Challan, Self-Invoice, Payment Voucher.
✅ Maintain stock and ITC-04 records for goods sent and received.
✅ Pay GST under RCM → then claim full ITC if goods used for taxable/export supply.

✅ 10. Summary Table

Party GST Registration Tax Mechanism Who Pays GST Rate ITC Eligible?
Job worker Registered Forward charge Job worker 5% / 12% Yes (principal)
Job worker Unregistered Reverse charge (RCM) Principal 5% / 12% Yes


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