Start with how the waste or scrap arose
CGST Act section 143(5) covers waste and scrap generated during job work. A registered job worker may supply it directly from its place of business on payment of tax; if the job worker is not registered, the principal supplies it under the provision. CBIC Circular 38/12/2018-GST paragraph 9(iii) explains this distinction. Do not assume every disposal at the job-worker site is scrap generated during job work.
Read the applicable text: CBIC, CGST Act section 143(2) and (5) CBIC Circular 38/12/2018-GST paragraph 9(iii).
Separate the supplier from the site
Verify the job worker's registration status for the transaction and document the applicable supply route. A buyer collecting material at an unregistered job worker's premises does not make that job worker the registered supplier. When the principal makes the sale, reconcile its own GST invoice, tax and return reporting with the scrap collected at the job-worker site. Where a registered job worker makes the supply, reconcile its evidence without duplicating the invoice in the principal's output supplies.
Tie the quantity to production evidence
Reconcile opening material and inputs sent to finished goods returned or supplied, scrap generated, documented process loss and closing material at the job worker. Track generated scrap separately through return, direct sale and scrap still held so it is counted once. Use consistent units and batch-level weights; investigate quality downgrades, unprocessed inputs or unexplained gaps separately. Keep evidence of which party owns or is entitled to sell the scrap and any agreed consideration or recovery between the parties.
Review valuation and movement as separate controls
Identify the buyer, consideration, related-party issues, classification, place of supply and applicable rates under current rules. The examples work in quantities and assumed values without fixing a scrap rate. Distinguish a taxable sale from material returned to the principal. Review applicable invoices, delivery challans, e-way bills and job-work reporting on their own facts.
Close both principal and job-worker records
Section 143(2) puts responsibility for proper accounts of the inputs and capital goods on the principal. Cross-check the batch register to scrap sale evidence, stock adjustment and any contract settlement. Do not assume scrap documentation by itself resolves the return or supply deadlines for the remaining goods.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Reconcile a finished batch
The principal sends 1,000 kg. Finished goods returned weigh 780 kg; generated scrap is 150 kg and documented process loss 70 kg. The batch balances with no unexplained quantity.
Illustrative example 2: Keep retained material separate
Of 600 kg sent, 440 kg returns as output, 80 kg is evidenced scrap and 50 kg remains on site as work in progress. There is a 30 kg difference to investigate before classifying it as loss.
Illustrative example 3: Confirm which party's invoice to expect
A registered job worker supplies 120 kg of generated scrap at an assumed ₹35/kg, excluding tax. The value is ₹4,200. Reconcile the job worker's supply evidence to the principal's quantity records without a duplicate outward invoice.
Illustrative example 4: Unregistered job-worker site
A principal supplies 90 kg of generated scrap from the site of an unregistered job worker at an assumed ₹42/kg excluding tax. The supported value is ₹3,780. Review the principal's documentation and applicable GST separately.
Illustrative example 5: Distinguish return from sale
A batch generates 160 kg scrap; 65 kg returns to the principal and 95 kg is supplied directly on the assumed facts. Match movement evidence for the 65 kg and sale evidence for the 95 kg; do not invoice all 160 kg to the buyer.
Illustrative example 6: Resolve a weight variance
The material register shows 240 kg scrap, buyer weighment is 225 kg and 10 kg is still in the job worker's yard. The unexplained difference is 5 kg; preserve weighment records before adjusting the stock or invoice.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the underlying job work | Agreement, challan and goods description |
| 2 | Identify batch and original quantity | Dispatch and job-worker receipt records |
| 3 | Classify generated scrap | Production, yield and quality evidence |
| 4 | Verify job-worker status | Registration record at supply date |
| 5 | Identify the actual supplier | Section 143(5) treatment and contract |
| 6 | Reconcile return, sale and retained stock | Weighment and inventory bridge |
| 7 | Review valuation and applicable tax | Invoice, buyer and classification evidence |
| 8 | Verify movement documentation | Challan or invoice and transport record |
| 9 | Check both parties' records | Output evidence and principal job-work register |
| 10 | Close unresolved differences | Exception register and reviewed settlement |
Sixteen practitioner FAQs
1. Is all material at a job-worker site covered by section 143(5)?
No. Identify waste or scrap generated during job work.
2. Who may sell if the job worker is registered?
The registered job worker may supply it directly from its premises on payment of tax under the provision.
3. Who supplies if the job worker is not registered?
The principal supplies it under the stated provision.
4. Does buyer collection make the site operator the supplier?
No. Apply the statutory route and actual supply facts.
5. Can the principal issue a duplicate sale invoice for the job worker's supply?
No. Reconcile evidence without duplicating outward supply.
6. What if scrap is returned to the principal?
Distinguish the movement from a sale and apply the applicable documents.
7. Is every production loss treated as scrap?
No. Distinguish saleable or identifiable scrap from supported loss and unexplained variance.
8. Can unused inputs be marked as scrap to close the register?
No. Verify what actually occurred and the applicable treatment.
9. Who maintains the proper accounts under section 143(2)?
The principal is responsible.
10. Does section 143(5) prescribe a single GST rate?
No. Determine the correct classification and rate separately.
11. Why retain weighment records?
They connect produced, retained, returned and supplied quantities.
12. What if consideration is adjusted against job charges?
Document the commercial settlement and assess supply and valuation separately.
13. Does a scrap invoice close the remaining job-work balances?
No. Reconcile other inputs, outputs and deadlines separately.
14. Should quantities from different units be added directly?
Use supported conversion factors and keep the base units.
15. What if a batch has a five-kilogram gap?
Investigate actual movement and measurements before assigning a tax treatment.
16. What closes the file?
A supported quantity reconciliation and the correct supplier's movement and sale evidence.
Official sources
CBIC, CGST Act section 143(2) and (5) CBIC Circular 38/12/2018-GST paragraph 9(iii)