Two arrangements that often get confused under GST are job work and works contracts. They sound similar but are taxed on completely different logic — one is about sending goods out for processing and bringing them back, the other is a single composite supply tied to immovable property. Getting the distinction right matters for both tax and compliance.
Reviewed by CA Harika Chebolu, FCA · Last updated 2026-06-15
Quick answer
Job work and works contracts are treated very differently under GST. One moves goods for processing; the other is a composite supply of service. Here's how each works.
Job work is when a registered person (the principal) sends inputs or capital goods to another person (the job worker) for processing — such as machining, finishing or assembly — and the goods come back. The key feature is that ownership of the goods stays with the principal throughout; the job worker is supplying a service of processing, not buying and selling the goods. This framing drives how the movement and the tax are handled.
Goods can be sent to a job worker without treating the movement itself as a supply, provided they are returned or otherwise dealt with within the periods the law prescribes. If the goods are not received back within the permitted time, the law can deem the original dispatch to be a supply, with tax consequences. Because the exact periods and the treatment of capital goods versus inputs are specific, track the movement carefully and confirm the applicable timelines rather than relying on a rough memory of them.
The principal moves goods under a delivery challan and is responsible for accounting for them, including goods sent on to another job worker. The principal generally retains input tax credit on the inputs even though they are physically with the job worker, subject to the prescribed conditions. The discipline that keeps job work clean is matching what was sent against what came back, supported by challans, so that nothing silently crosses a timeline and becomes a deemed supply.
A works contract under GST is a contract for work on immovable property — construction, building, fabrication, installation, repair and similar activities where goods and services are bundled together. Crucially, GST treats it as a composite supply of service, not as a separate sale of goods plus a service. That single-supply treatment changes how the whole contract is taxed compared with selling materials and labour separately, and it is the most common point people get wrong.
Because a works contract is a service tied to immovable property, input tax credit on it can be restricted in certain situations — particularly where the result is the construction of immovable property for the recipient's own account. The position depends on who is receiving the supply and for what purpose, so the credit question should be checked case by case rather than assumed. As with all GST, tax paid late attracts interest at 18% per annum, so getting the classification and timing right upfront avoids costly corrections later.
In job work, ownership of the goods stays with the principal — the job worker only supplies a processing service and the goods are meant to come back. It is not a sale, which is why the movement can be made without treating it as a supply, subject to the prescribed timelines.
If the goods are not received back within the period the law allows, the original dispatch can be deemed a supply, with tax consequences. That is why you should track the movement against challans and confirm the applicable timelines.
Because GST treats a works contract on immovable property as a single composite supply of service, not as a separate sale of goods plus labour. This changes how the whole contract is taxed, and input tax credit on it can be restricted depending on who receives it and why.
Dealing with job work movements or a works contract and unsure how GST applies? Write to the firm and we'll get your classification, documentation and credit right.