Eleven Workers, an Inter-State Enquiry and No Books
A proprietary fabrication job-work unit in Pune district has 11 workers and welding machines on the premises, and operates from a rented shed in an area zoned partly residential and partly commercial. In year one turnover was ₹19 lakh; in year two it reached ₹26 lakh, made up of job-work charges billed to two Pune companies plus some sale of fabricated grills. The proprietor has never registered for GST, keeps a single bank account that mixes household and business spending, and issues handwritten receipts. A Gujarat buyer has now enquired about a ₹4 lakh order to be dispatched next month. The proprietor believes that because he is below "twenty lakh" he is exempt, and that a factory licence is only needed by large plants.
1. Determine his GST position: is registration required, from when, and is the composition scheme suitable?
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Threshold analysis - his "twenty lakh" belief is only half right:
- Goods: the normal-state threshold in Maharashtra is ₹40 lakh, so intra-state sale of grills at ₹26 lakh would not by itself require registration.
- Services: the threshold is ₹20 lakh, and job-work charges are a supply of services. His combined turnover has crossed ₹20 lakh, so the date on which service turnover alone crossed ₹20 lakh fixes his liability date - he is already late, and late registration attracts penalty.
- Inter-state supply: under Section 24, registration is compulsory for inter-state taxable supply regardless of turnover. The moment he dispatches to Gujarat he must have a GSTIN, invoice with his GSTIN and the place of supply, and an e-way bill if consignment value exceeds ₹50,000.
Composition scheme - not suitable, and the reasoning matters:
- The scheme (1% for manufacturers/traders, up to ₹1.5 crore) bars inter-state outward supplies, which kills the Gujarat order.
- It bars input tax credit. He has welding machines, tools and consumables bearing GST; the credit on ₹9 lakh of machinery alone is a substantial sum he would forfeit permanently, and it would be lost again every year on consumables.
- A composition dealer cannot collect GST from customers and must issue a bill of supply, which many industrial buyers reject when claiming credit.
Correct choice: regular registration, backdated to the liability date, with voluntary registration for the goods line so that the Gujarat order can be invoiced lawfully. File the pending returns, pay tax with interest, and get the registration certificate amended to include the shed address.
2. Which statutory licences and registrations does the unit actually need, given 11 workers and welding operations?
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Factory licensing: under the Factories Act, 1948, a premises where 10 or more workers work with the aid of power (or 20 or more without power) is a factory. With 11 workers and welding machines, he is a factory. He needs registration and a licence under the Maharashtra Factories Rules, the notice of occupation, and compliance with safety (fencing of machinery, welding screens, eye protection), welfare (drinking water, first aid, canteen/shelter thresholds), working hours, leave with wages and maintenance of registers. This is his largest exposure: unlicensed operation is a prosecutable offence and insurers routinely deny claims for accidents in an unregistered factory.
Other registrations:
- MPCB consent to establish and operate - fabrication is generally in the lower (green) category, but consent is still required, and welding fumes and paint if used may push it higher.
- Udyam registration - free, and the only way to claim the MSMED Act protection of payment within 45 days from his Pune buyers.
- Shops and Establishments registration is displaced once the premises qualifies as a factory, so do not register under both and create confusion.
- Fire NOC from the local fire authority, trade licence from the municipal body, and professional tax employer registration.
- Zoning: verify that the shed's use is permissible for fabrication; a partly residential zone can lead to a closure notice, and a move later is far costlier than checking now.
- EPFO/ESIC thresholds: he is below 20 for EPF now but should track the count monthly, and ESIC applies at 10 or more employees depending on the wage ceiling.
3. Design a record-keeping and compliance calendar for him, and explain what he should have done differently in year two.
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Minimum records that survive scrutiny:
- Books of account - a cash book, bank book, purchase and sales registers, stock register, fixed-asset register, and a job-work register recording goods received from and returned to each principal, with delivery challans.
- Separate bank account for business; personal drawings recorded as drawings, not as expenses. Commingling is the single biggest reason small proprietors cannot substantiate a loan application or a GST return.
- GST invoices with the prescribed particulars (GSTIN, invoice number series, HSN/SAC, place of supply, tax rate and amount), bill of supply where applicable, credit/debit notes, and e-way bills for the Gujarat dispatch above ₹50,000.
- Retention: books and GST records for 72 months from the due date of the annual return for that year.
Compliance calendar: GSTR-1 by the 11th and GSTR-3B by the 20th of the following month (or the quarterly QRMP cycle), annual return GSTR-9 where applicable, TDS returns if he deducts tax, professional tax by the prescribed date, factory registers monthly, and a monthly reconciliation of GST output with the sales register.
What year two should have looked like: the moment job-work receipts were trending past ₹20 lakh, he should have registered for GST, obtained Udyam and the factory licence, separated the bank account, and issued GST invoices from that date. Doing it after the Gujarat enquiry means he now pays tax with interest and penalty on past billing, cannot pass on credit to his Pune buyers (who may recover it from him commercially), and risks the ₹4 lakh order going to a registered competitor.