GST for manufacturing: the exposure map

Job work, plant credit, scrap and cross charge. Four heads that account for most manufacturing demands.

Anandaday Misshra, Founder and Managing Partner, AMLEGALS · 8 min read · updated 3 September 2026

The short answer

Manufacturing exposure concentrates in five places: credit on plant and civil construction after the retrospective substitution in Section 17(5)(d), job work under Section 143 and the one year return period, process loss and stock differences under Section 35(6), reverse charge on imported services and specified domestic services, and cross charge and ISD across a multi state footprint. Classification of components on the sole or principal use test is the sixth, and it moves both ways after Westinghouse Saxby.

Where the money leaks

Project credit. A greenfield or expansion project generates a single large credit claim, and the department denies it in one figure. The answer is a line item bifurcation of the capitalisation schedule into civil structure, apparatus fixed to earth, and revenue expenditure, with erection and foundation records for every apparatus line.

Job work. Goods sent out and not returned within one year are deemed supplied from the date of despatch, with tax and interest running from that earlier date. A job worker wise register with an ageing report flagged at nine months prevents it.

Process loss and stock. A physical verification difference becomes a deemed supply under Section 35(6). A technical process loss study, refreshed periodically, is the only answer that works.

Scrap and by products. Classification, rate and the credit position on scrap sales, and the treatment of scrap generated at a job worker's premises.

Reverse charge. Imported technical services, royalty, group charges, GTA, security services and renting of motor vehicles. The monthly foreign payment extract finds most of it.

Cross charge and ISD. Head office functions supplied to plants must be cross charged; third party common services must be distributed through the mandatory ISD mechanism.

The recurring disputes

Whether a component is a part of the machine on the sole or principal use test, which changes the rate in either direction.

Whether tooling and moulds supplied free of cost by the customer are includible in the component price, which turns on who was contractually obliged to provide them.

Post sale discounts and volume rebates from suppliers, and the credit note conditions.

Warranty replacements and spares, following Circular 195/07/2023-GST.

Credit on employee canteen and transport where the Factories Act obligation is claimed, which requires the statute, the headcount and the recovery pattern.

The controls that pay for themselves

A project credit file built as the project runs, with the bifurcation and the erection records, rather than assembled at audit.

A job work register per job worker with a nine month ageing flag, reconciled monthly.

A process loss study per product line, with historical data.

A monthly foreign payment and specified services extract reconciled to the reverse charge register.

A cross charge schedule and an ISD distribution reconciliation, run monthly.

What to do on Monday

Build the project credit bifurcation as the project runs, with erection and foundation records.
Run the job work ageing report monthly with a nine month flag.
Commission and refresh a process loss study for every significant product line.
Reconcile the monthly foreign payment extract to the reverse charge register.

On your own facts

This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.

Write to the GST practice

Questions we are asked on this

Is credit available on a new factory building?

No. Building and civil structure are excluded. The equipment inside it is eligible as plant and machinery, and the bifurcation is the whole exercise.

What happens if job work goods are not returned in a year?

The despatch is deemed to be a supply from the date the goods were sent, with tax and interest from that date.

Is process loss accepted?

With a technical study and historical data, generally yes. Without one, rarely.

Do we have to cross charge head office functions?

Yes, as supplies between distinct persons, with valuation simplified where the plant has full credit.

Does the sole or principal use test help us?

It depends on the rate direction. Test it both ways before relying on it.

In this cluster

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.