ContractsJob Works Agreement

August 18, 20210


What is Job Work?

Job work has been defined under Section 2(68) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) asany treatment or process undertaken by a person on goods belonging to another registered taxable person”.

Rule 2(n) of the CENVAT Credit Rules, 2004 further defines job work as working upon raw materials or semi-finished goods supplied to the job worker to complete a part or whole of the process resulting in the manufacture of an article or any essential operation for the end product.

What is a Job Work Agreement?

A job work refers to the process of working upon goods supplied in raw or semi-finished form, for undertaking any further processing. Thus, a job works agreement (JWA) is entered into between the job worker and the principal manufacturer to regulate the process of converting unfinished goods into finished goods by the job worker on performance of specific job work.

For any agreement to be a valid contract in India, it should follow the essential elements prescribed under the Indian Contract Act, 1872. Hence, a JWA should consist of an offer, acceptance, consideration, competent parties, legal object, and free consent.



Section 2(119) of the CGST Act defines “works contract” as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract”.

On comparing the above definitions of “Job Works” and “Works Contract”, a deduction can be made that a Works Contract has a restriction attached to it i.e. it is associated only with the immovable property, whereas, a JWA is associated with the processing of goods, i.e., movable property. Moreover, works contract pertains to the value addition in respect of materials. However, a JWA does not stipulate value addition per se in respect of materials, as it pertains to processing or treatment of semi-finished goods or raw materials.



In a clarification issued by the Central Board of Excise and Customs vide Circular No.38/12/2018 dated 26.03.2018, the Ministry of Finance laid down the ambit of job works under the CGST Act.

The Circular relied on the definition provided by Section 2(68) of the Act which states that the service as a job work is that of processing and treatment on the input goods which belongs to another registered person i.e., the principal manufacturer.

Thus, the scope of work under a JWA would include the processing or treatment of goods sent by the principal manufacturer to the job worker. However, the JWA may also stipulate that a job worker, in addition to the goods sent by the principal manufacturer, can use their own goods for carrying out the job delegated to them.

It is pertinent to note that the scope of JWA is not restricted to the definition accorded to it by the CGST Act, and may include corollary services which are interconnected with the main service of processing or treatment of semi-finished goods, as held by the Authority of Advance Ruling (West Bengal) in In Re: Vrinda Engineers Private Limited (WBAAR 14/2020).



  1. A JWA is entered into between a job worker and a registered principal manufacturer.
  2. The relationship under this type of arrangement is wholly service based where the job worker receives goods from the principal for a particular operation and sends for further job or back to the principal, as the case may be.
  3. Herein, the job worker has a particular scope of work, as defined under the JWA, and no specific instructions are given by the manufacturer in terms of the processing of the goods by the job worker.
  4. All the rights arising under the JWA is transferred to the principal upon receipt of payment by the job worker for the operations/processing from the principal.



1. Definitions

The JWA should clearly define specific terms which are associated with the operations to be undertaken for the job works. The following definitions are usually accorded to the below mentioned terms:

  • Principal Manufacturer: It refers to the person providing raw material or semi-finished goods or intermediate goods for the processing of goods by the job worker.
  • Job Worker: It refers to the person engaged for the processing or treatment of raw material or semi-finished goods provided by the principal manufacturer.
  • Work: It refers to all the work to be executed; all items and things to be provided or done; and all the services and activities to be performed for the processing or treatment of raw material or semi-finished goods.

2. Scope of Work

The Scope of Work under a JWA should encompass the following factors:

  • The person responsible for handling and supervision of the job work;
  • The activities or operations to be undertaken under the job work;
  • The activities or operations to be outsourced (if required) under the job work;
  • The liability of payment of wages to the job workers;
  • Maintenance of records related to the job work assignment

3. Manpower Requirement

The JWA may stipulate the number of skilled and unskilled manpower to be engaged in the operations under the job work. It may also specify the types of manpower required, such as technical, scientific, non-technical, professional, ministerial or miscellaneous. The Agreement should provide for utmost compliance with the Factories Act, 1948 for the hiring of factory workers for the job works.

4. Terms and Conditions for the Job Work

Certain terms and conditions can be prescribed under the JWA, such as:

  • Employment of only trained staff with good health and sound mind, and of major age.
  • Observing of security and safety regulations prescribed under any Law and the principal manufacturer’s instructions by the job workers.
  • The principal manufacturer’s right to recover in case of any loss of any nature on account of the job worker not following any security or safety regulations, or the principal manufacturer’s instructions.
  • Outsourcing of the job work assigned only with the written consent of the principal manufacturer.
  • Time period for completion of the job works, condition for extension of time period, probation period, termination of the JWA, etc.
  • Penalty for violation of any of the provisions of the JWA, such as delay in completion of the job works.
  • Job workers shall not be treated as the staff of the principal manufacturer for any purpose whatsoever.
  • The company providing job workers shall be responsible for strict compliance of all statutory provisions of relevant labour laws applicable. Further, all the requirements of the applicable statues including but not limited to the Minimum Wages Act, Payment of Wages Act, Industrial Disputes Act, Gratuity Act, Contract Labour (Regulations and Abolition) Act, Workmen Compensation Act, Employee State Insurance Act, etc, shall be fulfilled by such company.

5. Terms of Payment

The JWA should clearly stipulate the terms of payment, including the due date for payment and the specific amount to be paid. Further, the terms of payment may also specify fulfilment of certain pre-requisites for the discharge of payment by the principal manufacture.

6. Taxes, Duties and Levies

Job workers are considered as a separate taxable person against the supply of goods by the principal and all supply of goods and services between the registered person/principal and the job worker shall be subject to the levy of tax under the CGST Act and the SGST Act. Therefore, the JWA should clearly specify the GST implications on the job work performed and the mode of payment of such GST.

The JWA can further stipulate that apart from GST, all VAT, duties, levies, etc. imposed by the State, Central Government and local bodies in connection with the job works should be paid by the job works company, which shall be later reimbursed by the principal manufacturer on the production of proof of payment.



A contract is an integral aspect of any transaction and it is hugely vital to choose the correct agreement containing all the clauses which are required for the purpose of such transaction, in order to mitigate the chances of any future disputes.

A JWA is executed to engage a third party for processing or providing a particular treatment to a product for its final sale or consumption, which is distinct from the employee-employer relationship entered into through an employment agreement. Thus, JWAs should contain clauses specific to the scope of job works to be performed, distinct from the clauses contained in a works contract or an employment agreement.

A JWA helps protect the interests of both the job worker and the principal manufacturer, as it contains clauses which provide for dispute resolution, penalty, indemnity, warranty, terms of payment, etc. However, such clauses incorporated under a JWA should be with an object to regulate the processing or treatment to be performed on semi-finished goods or raw materials, in order to ensure that the job work promised by the job worker to the principal manufacturer is completed as per the requirement, within the set time period.


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