Waste and Scrap Generated During Job Work

Waste and Scrap Generated explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Almost every process makes waste, and waste is a commercial problem before it is a tax one: it is bulky, low-value and expensive to move. Section 143(5) is drafted so that it need not move at all.

Section 143(5) opens with "Notwithstanding anything contained in sub-sections (1) and (2)" — so the return obligations and the accounts provision do not stand in the way. Waste and scrap generated during job work may be supplied by the job worker directly from his place of business on payment of tax if he is registered, or by the principal if the job worker is not registered. Where the job worker is unregistered, the scrap returns with the goods, or the principal may supply it from the job worker's premises under his own invoice. The department cannot demand tax on more scrap than was generated — Pearl Soap & Co.

The provision, and why it starts as it does

"Notwithstanding anything contained in sub-sections (1) and (2), any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered."

The non obstante clause is doing real work. Sub-section (1) requires goods to be brought back or supplied from the job worker's premises within one year, subject to the APOB proviso; sub-section (2) puts the accounts on the principal. Without the override, scrap would be caught by both — a principal would have to declare an APOB to sell scrap from a job worker's yard, and would face a deemed supply on any scrap not returned in time.

Section 143(5) removes that. Scrap has its own route, and the one-year clock does not chase it.

The three routes

The Handbook sets them out:

(i) Registered job worker. "If the job worker is registered, then it can be supplied by the job worker directly from his place of business, on payment of appropriate tax applicable on the said waste / scrap."

Note whose supply this is. Unlike the finished goods under section 143(1)(b) — which remain the principal's supply even when sold from the job worker's premises — scrap sold under section 143(5) by a registered job worker is his own supply, on his own invoice, at the rate applicable to the scrap. Section 143(5) is a substantive permission, not a place-of-despatch relaxation.

(ii) Unregistered job worker — return it. "If he is not registered, then the waste / scrap generated should be returned to the principal along with the goods and such waste / scrap would be supplied by the principal on payment of tax."

(iii) Unregistered job worker — sell from his premises. "Alternatively, the principal may supply waste / scrap directly from premises of the job worker under his invoice on payment of tax."

Route (iii) is the practical answer for bulky waste. The principal raises its own invoice, the goods never travel to the principal's factory, and the tax is paid.

The quantum question, and the case that answers it

This is where scrap disputes actually arise — not over who sells it, but over how much there should have been.

"An issue may arise on the quantum of scrap. It might be possible that during the job work, scrap may be generated in less than normal quantity. In such a case, the department cannot ask for GST on higher value of scrap provided that the principal is not allowing scrap more than what is generated. Pearl Soap & Co. 187 ELT 460 CESTAT - Mumbai."

The pattern the proposition addresses is familiar. An officer takes an industry norm, or the principal's own historical yield, computes what the scrap "should" have been, and demands tax on the difference. Pearl Soap holds that the tax follows actual generation, not a notional norm — provided the principal is genuinely accounting for what was generated and is not writing off more than that.

The proviso in that sentence is the important half. The protection runs to a principal whose records show actual yields. It does not protect one whose scrap allowance in its costing exceeds what its process produces, because the excess then looks like unaccounted finished material rather than waste.

Which is why the records requirement follows immediately.

The records the principal must keep

"The principal should also maintain proper records of clearance of waste / scrap from the premises of the job worker."

And section 143(2) makes it his job in terms. The Handbook: "In terms of section 143(2) of CGST Act, 2017 the principal shall be responsible for keeping proper accounts for the inputs or capital goods or waste / scrap lying with the job-worker."

Note that section 143(2) is one of the sub-sections the non obstante clause in (5) overrides — but only so far as it prevents the scrap being supplied by the job worker. The accounting responsibility survives. The principal must know, for every consignment out, what came back, what became product, and what became scrap.

A workable record set ties three quantities together for each challan: input quantity despatched, finished quantity received back or supplied, and scrap generated and cleared — with the scrap line cross-referenced to the invoice under which it was sold, whether the job worker's or the principal's.

What the rate is

Section 143(5) requires supply "on payment of appropriate tax applicable on the said waste / scrap" — the rate of the scrap as goods, not the job work rate. Metal turnings, fabric cuttings, paper trimmings and plastic runners each carry their own classification and rate.

One current point to hold alongside this. Since 10.10.2024, metal scrap of Chapters 72 to 81 supplied by an unregistered person to a registered person is under reverse charge, and registered-to-registered metal scrap supplies attract 2% TDS under section 51. A principal buying back or selling metal scrap out of a job work chain should test both. Metal scrap under reverse charge →

Key takeaways

• Section 143(5) overrides sub-sections (1) and (2), so scrap need not be returned and is not caught by the one-year clock.
• A registered job worker sells scrap from his own premises, on his own invoice, at the rate applicable to the scrap.
• An unregistered job worker returns it with the goods, or the principal sells it from the job worker's premises under the principal's invoice.
• Scrap sold by a registered job worker is his supply — unlike finished goods under section 143(1)(b), which remain the principal's.
• The department cannot tax scrap that was not generated — Pearl Soap & Co., 187 ELT 460 (CESTAT Mumbai) — provided the principal accounts only for actual generation.
• The principal must keep records of clearance of waste and scrap from the job worker's premises, and section 143(2) makes the accounts his responsibility.
• The rate is that of the scrap as goods, and metal scrap carries its own RCM and TDS consequences since October 2024.

Read next

• Section 143: The Job Work Procedure, Clause by Clause
• Metal Scrap Under Reverse Charge: Entry 8 and the Three Notifications of October 2024
• Supplying Directly From the Job Worker's Premises

Disclaimer: Positions stated as on 5 September 2026, based on section 143 of the CGST Act, 2017 and Pearl Soap & Co., 187 ELT 460 (CESTAT Mumbai), as reproduced in the ICAI Handbook on Job Work under GST (4th edition, June 2026).