Setting Up Subcontracting

Business Central has included Subcontracting Feature to Indian Localization.

Subcontracting process is very common in manufacturing organizations. Organizations adopt the job work process due to their capacity constraints, lack of resources or due to machine breakdowns. In Subcontracting, a delivery challan is used to send the raw items to the sub-contractor from the company. With some value addition by the sub-contractor, the finished items are sent back to the company.

While receiving the finished items in the company against a sub-contracting order, it is mandatory to apply received material against the delivery challan to knock off the raw items at sub-contractor end.

As far as the costing of finished item is concerned, it consists of raw material cost, sub-contracting cost along with the other charges such as freight etc.

Raw items are taxable. Therefore, it is mandatory to follow the statutory requirement. As per this, the raw items sent to the sub contractor should return back within specified return period otherwise GST liability will be created. This feature enables you to create the GST liability and also lets you reverse the GST liability after receiving the raw items from sub- contractor

Multiple subcontracting orders

Subcontracting feature also enables you to send the raw items to subcontracting vendor for multiple subcontracting orders against a single Delivery Challan. Delivery Challan will show the details of all subcontracting orders for which the raw material components have been sent to subcontracting vendor.

Stock register for job work

Stock register for job work gives the details of delivery challan sent to the subcontractor. This register shows all the transaction against a delivery challan and at any movement it will also show the status of delivery challan along with GST liability if any.

Setting up subcontracting

Following setups are required for Subcontracting:

Subcontracting location setup

You need to create a set up for subcontracting location. Raw item needs to be transferred from company location to subcontracting location.

Choose the icon, enter Locations, and then choose the related link.
On the Tax Information FastTab, enable the boolean in the Subcontracting Location field to make this location as a Subcontracting Location.

Setting up subcontracting vendor

You need to set up a vendor as a subcontractor. Same vendor can be the prime vendor as well as a subcontracting vendor. Each subcontracting vendor needs to be attached with the subcontracting location.

Choose the icon, enter Vendor, and then choose the related link.
On the Tax Information FastTab, enable the boolean in the Subcontractor field to make this vendor as a Subcontractor.
Select the subcontracting location by clicking on Vendor Location look up field.
Enter the Commissioner’s Permission No. which is mandatory for the subcontractor.

Setting up subcontracting item

The finished item needs to be identified as a subcontracting item.

Choose the icon, enter Item, and then choose the related link.
On the Cost & Posting FastTab, enable the boolean in the Subcontracting field to make this Item as a subcontracting item.
Select the subcontracting location by clicking on Sub. Comp. Location look up field. This is the location from where you will send the raw material to the subcontractor.

Setting up job work return period

As per statutory requirement, if the taxable item does not return within a specified period, then GST liability should be created against the subcontractor. Therefore, GST liability exists only after the completion of job work Return period.

Choose the icon, enter Inventory Setup, and then choose the related link.
On the Numbering FastTab, enter the return period for which you want to create GST liability in the Job Work Return Period field.
Select the Sub. Component Location from lookup list. This sub component location will be used to transfer the raw items to the subcontracting location through delivery challan.

Setting up source code

As per statutory requirement, you need to define the source code in the source code set up window. This source code is mandatory if subcontractor does not Return the item within job work Return period, then to create the GST liability. Source code is also required if any subcontracting item is received after the job work Return period.

Choose the icon, enter Source Code setup, and then choose the related link.
On the General FastTab, select Source code in the GST Receipt – Job Work field.
Select Source code in the GST Liability – Job Work field.

Setting up general ledger setup

You need to create a new account in the chart of account which will be used for booking GST expenses while creating the GST liability in case of non-receipt of subcontracting items within the job work return period.

Choose the icon, enter General Ledger setup, and then choose the related link.
On the Tax Information FastTab, select GST Expense –Job Work account in the GST Expense Acc. - Job Work field.

Setting up work center

You need to setup the work center for the subcontracting vendor. On the work center, you can also set up the unit cost of job work.

Choose the icon, enter Work Center, and then choose the related link.
On the Posting tab, select subcontracting vendor in the Subcontractor No. field.

Setting up routing

You need to create a Routing for finished item. Routing defines the sequence of the operations required to manufacture the finished item.

Choose the icon, enter Routing, and then choose the related link.
On the Lines tab, select subcontracting work center no. in the Work Center No. field.
On the Lines tab, enter the job work charges in the Unit Cost Per field.

GST liability no series setup

No. series for GST liability invoice is setup on location master. You can define location wise number series for GST liability invoices.

Choose the icon, enter Locations, and then choose the related link.
On the Tax Information FastTab, select No. series code in the GST Liabilty Invoice field.