CA Lalit Munoyat
1) Overview: The scheme of levy of excise duty on precious metal jewellery was introduced in the Budget 2011 vide notification No. 1/2011. Under the this scheme excise duty of 1% ad valorem was applicable to precious metal jewellery manufactured or sold under a brand name. The levy would now apply to both branded and unbranded goods (except silver jewellery) at the same rate of duty of 1%. ad valorem.
2) Under which provisions of the Excise law, this duty has been levied ?
This duty has been levied under Notification No.12/2012-Central Excise w.e.f. 17-03-2012 as per @ 1% on the transaction value of all articles of jewellery following. However Articles are Silver Jewellery is fully exempt from excise duty.
3) What is the meaning of “Articles of Jewellery” ?
The meaning of Articles of jewellery is as under :
i) Articles of jewellery of GOLD
b. Set with pearls
c. Set with diamonds
d. Set with other precious and semi-precious stones
ii) Articles of jewellery of Platinum, unstudded (i.e. platinum, iridium, osmium, palladium, rhodium and ruthenium.
iii) Articles of jewellery of BASE METAL clad with precious metal
iv) Articles of jewellery of ALLOY
v) Examples of the meaning of Articles of Jewellery:
(a) any small objects of personal adornment (for example, rings, bracelets, necklaces, brooches, ear-rings, watch-chains, fobs, pendants, tie-pins, cuff-links, dress-studs, religious or other medals and insignia); and
(b) articles of personal use of a kind normally carried in the pocket, in the handbag or on the person (for example, cigar or cigarette cases, snuff boxes, cachou or pill boxes, powder boxes, chain purses or prayer beads)
(c) These articles may be combined or set, for example, with natural or cultured pearls, precious or semi-precious stones, synthetic or reconstructed precious or semi-precious stones, tortoise shell, mother-of-pearl, ivory, natural or reconstituted amber, jet or coral.
vi) Precious metal means silver, gold and platinum. (Silver excluded from this scope)
vii) Platinum means platinum, iridium, osmium, palladium, rhodium and ruthenium.
viii) Metal clad with precious metal means material made with a base of metal upon one or more surfaces of which there is affixed by soldering, brazing, welding, hot-rolling or similar mechanical means a covering of precious metal and include base metal inlaid with precious metal.
ix) Base Metal has not been defined for the above purpose but may be understood as a metal other than precious metal.
x) Alloy Metal say an intermetallic compound means
a. an alloy containing 2% or more, by weight, of platinum is to be treated as an alloy of platinum;
b. an alloy containing 2% or more, by weight, of gold but not platinum, or less than 2% by weight, of platinum, is to be treated as an alloy of gold;
c. other alloys containing 2% or more, by weight, of silver are to be treated as alloys of silver
xi) Articles of jewellery do not cover articles in which precious metal or metal clad with precious metal is present as minor constituents only, such as minor fittings or minor ornamentation (for example, monograms, ferrules and rims)
4) How shall the amount of duty be calculated ?
Duty would be chargeable on tariff value under section 3 of the Central Excise Act which shall be equal to 30% of the “Transaction value” declared on the invoice.
5) What is Tariff Value ?
Normally Excise duty is collected on invoice value (before VAT and other taxes) at the rate fixed for that particular item/product. However the Central Government may fix some particular value of a particular product with reference to which excise duty will be charged. For example it may fix Rs. 30 Lakhs as the price of jewellery of 1 Kg. of 20 Ct. Once that is done every manufacturer shall have to pay duty calculated with reference to the value of Rs. 30 Lakhs irrespective of the fact that different manufacturers may have sold jewellery at different rates say A- selling at Rs. 31 Lakhs, B- selling at Rs. 29 Lakhs, C- selling at 31 Lakhs so on and so forth. This gives clarity and leaves no scope of dispute due to valuation.
6) What is the Tariff Value for jewellery presently charged to duty @ 1% ?
The tariff value fixed for charging excise duty on jewellery is 30% of the Transaction Value, which may generally be assumed to be the Invoice Value before VAT. For example, a jeweler has sold 1 Kg. of Gold jewellery for say 29 Lakhs, (before VAT) then the tariff value for charging excise duty will be Rs. 30% of Rs. 29 Lakhs i.e. Rs. 8.70 Lacs and the duty payable @ 1 % will be Rs. 8700 plus 3% cess i.e. total Rs. 8961/-. The effective rate of duty, therefore is 0.309%. However the concession of paying duty on tariff value i.e. 30% of the Invoice Value will not be available where the retail customer provides the gold or old ornaments for remaking. This means if a customer provides the gold or old ornaments for remaking duty will be charged @1% on the invoice value without abatement of 70% .
7) Is Cenvat Credit available under this scheme of duty?:
NO. In order to avail the above concessional rate the manufacturer must not take credit of the duty paid under the CENVAT Credit Rules, 2004 in respect of the inputs or input services used in the manufacture of these goods.
8. ) Is there any Small Scale Industry (SSI) Exemption for Small Manufacturers ? If So, provide details with working examples.
YES. SSI Notification 08/2003 CE provides exemption to small scale jewellery manufacturers also. In order to be eligible for this exemption 2 basic conditions will have to be satisfied by the manufacturer.
a) The aggregate value of clearances of all excisable goods (Except those bearing third party brand name) for home consumption by a manufacturer
I. from one or more factories, or
II. from a factory by one or more manufacturers, does not exceed Rs. 4 Crore in the preceding financial year.
b) The exemption shall be available only upto the First clearances up to an aggregate value not exceeding Rs. 1.50 Crore (Except those bearing third party brand name) made on or after the 1st day of April in any financial year.
c) SSI exemption is not available to articles of jewellery bearing the brand name of another person.
A Special provision has been made for jewellery manufacturers such that for availing SSI benefit for the financial year 2012-13 the value of turnover for the financial year 2011-12 shall be calculated on tariff value ( and not on invoice value)
For calculation of excise duty with SSI exemption & also without SSI exemption in respect of total turnover of sales, branded, unbranded & third party branded for the period from 01-04-2011 to 16-03-2012 & from 17-03-2012 to 31-03-2012 :-
REFER to attached Tables of Examples –
9) Explain the calculation of figures of Rs. 13.33 Crores & Rs. 5.00 Crores.
i) The calculation of turnover has to be made on the basis of Tariff Value and not invoice value. The tariff value , as above stated, is 30% of the Invoice Value. So, if the Invoice value of a particular financial year say 2012-13 is Rs. 13.33 Crore, (excluding third party branded jewellery ) then the tariff value will be 30% of Rs. 13.33 Crore i.e. Rs. 4.00 Crore. So the first condition is satisfied.
Now, if the invoice value for the financial year2013-14 is Rs. 5.00 Crore (excluding third party branded jewellery ), then the tariff value will again be 30% of invoice value i.e. 1.50 Crore. So for the financial year 2013-14 the second condition is also satisfied. Therefore the jeweler will not be required to pay any excise duty.
There should not be any complication in making the above calculation because jewellery is generally covered under VAT in all the States and therefore to calculate the value of duty, the jeweler should just take the figure of Domestic Gross Turnover , local and interstate, as per his VAT Return , calculate 30% of the same, reduce this amount by Rs. 1.50 Crore and pay 1% on the balance turnover. (If the jeweler is an SSI Unit) . In case of Non- SSI pay just 0.309% of the sales before VAT (without reduction of Rs. 1.50 Crore) as per the VAT Return for the month, quarter, half year as may be applicable.
10) Will there be a proportionate reduction in the SSI limit of Rs. 1.50 Crore for the period from 17th March 2012 to 31st March 2012
The Finance Minister has stated that the exemption limit for the remaining part of 2011-12 i.e. between 17th March, 2012 and 31st March, 2012 will not be curtailed for manufacturers of unbranded jewellery who would come into the tax net afresh. In other words, eligible manufacturers/ factories would be entitled to exemption for the full threshold limit of `1.50 crore for this period.
Illustration- If a manufacturer X clears goods of value 1.4 crore till 16th March 2012, and from 17th March to 31st March 2012 manufacturer X clears goods of transaction value 30 lacs, the total value of clearances for SSI exemption in financial year 2011-12 shall be calculated as follows:-
a) Value of clearances from 1st April 2011 to 16th March 2012=Rs. 1.4 crore
b) Value of clearances from 17th March to 31st March 2012=Rs. 9 lacs (30% of transaction value 30 lacs)
c) Total value of clearances financial year 2011-12= 1.49 crore
For manufacturers who are already availing of the SSI exemption during 2011-12 also the computation of the exemption limit would have to be made on the basis of tariff value of clearances effected during the period from 17th March, 2012 to 31st March, 2012 by virtue of Explanation (C)(ii) of notification no. 8/2003-CE dated 1.3.2003.
11) What are the provisions for JOB WORK ?
Rule 12AA of the Central Excise Rules has been amended to provide that every person who gets articles of jewellery of heading no.7113 produced or manufactured on job-work shall obtain registration, maintain accounts, pay duty leviable on such goods and comply with the procedural requirements, as if he is the manufacturer. In other words, those artisans or goldsmiths who only manufacture jewellery for others on job-work need not obtain registration. The option to the job-worker to register, if he so desires, has been deleted.
12) If Articles of jewellery are manufactured from precious metal or old jewellery provided by the retail customer , then the retail customer shall not be regarded as a manufacturer for the purpose of this Rule and accordingly he shall not be required obtain registration, maintain accounts and comply with the procedural requirements.
13)It should be very clear that the Job worker (called Karigar) is NOT liable to excise duty when he manufactures articles of jewellery for his Principal Jeweler. It is the principal jeweler who shall be liable for all excise formalities. However, if the Job Worker himself engages, in addition to Job Work, manufacture of articles of jewellery on his own account, then he shall be treated as a manufacturer in respect of his own manufacture and will be liable to pay duty on the value of his own manufacture.
14) Is there any duty on Trading in Jewellery ?
Excise duty is charged only when there is a manufacture or deemed manufacture of any product. In case of pure trading , only VAT is applicable . But, if a jeweler buy jewellery from the open market and thereafter affixes or embosses his trade name or brand name on articles of jewellery, then the same shall be treated as manufacture of jewellery and be liable to pay excise duty. However the concession of paying duty on tariff value i.e. 30% of the Invoice Value will not be available is such case.
15) Trade felicitation Measures
The entire National Jewellery market is on strike against the levy of excise duty on unbranded jewellery also. There fear is founded more on the expected frequent visits to their business centre by excise field officers with consequent harassment due mainly, to quantity sold and its valuation. The Government may come out with some relief measures to mitigate these fears such as:
i. No field officer shall visit any jewelry shop or a Job Work factory without proper authorization from his higher authorities, say Additional Commissioner and that too, when there is a reasonable ground to suspect evasion of excise duty.
ii. The valuation as per VAT Returns should be accepted as fair valuation for the purpose of levy of excise duty.
iii. The periodicity of filing Excise Return (ER-1 etc) should be synchronized with the periodicity of VAT Returns.
iv. Any change in valuation in VAT Returns as initiated shall not suo moto lead to a change in the valuation for excise purposes.
Learned readers are welcome to suggest more such measures so that the issue may be solved amicably between the government and the business.
(Disclaimer: The following write up has been compiled from various clauses of the Finance Bill 2012 and notifications issued thereunder. The illustrative examples have been drafted based on the proposed changes by the Finance Bill 2012. The compilation may not be entirely correct for reader to reader due to different interpretations by different readers. The readers are advised to take into the consideration the prevailing legal position before acting on any of the comments in this write up. Readers are also requested to convey the correct position as per their interpretation of the Finance Bill 2012 which shall be most welcome for correcting this write up.)
CA Lalit Munoyat
B.Com.(Hons.), CS., FCA, DISA