There has been a lot of confusion and multiple interpretations are doing rounds over the past few weeks in respect of the taxability of Jewellery. In the ensuing paragraphs, an effort has been made to clear the air around this issue
I. HSN and SAC Codes
Before going into the details, it is important to make a note of relevant tax rates as notified by the CBEC.
|S. No.||Particulars||HSN/ SAC Code||GST Rate|
|1.||Rough and un-worked diamonds, precious and semi-precious stones||7102, 7103, 7104||0.25%|
|2.||Pearls, Gold, Silver, Articles of jewellery of gold, silver, etc||7106, 7108, 7113, 7118||3%|
|3.||Job work in relation to cut and polished Diamonds, plain or studded jewellery of gold, silver, etc||9988||5%|
|4.||Other professional, technical and business services (residuary clause)||9983||18%|
II. Taxability of Different Transactions
For the sake of simplicity and clarity, all the possible transactions between a Jeweller and a customer and their tax implications under the GST regime are listed below.
1. Customers walks into a Jeweller showroom and buys a Gold ornament worth Rs. 1,00,000
The Jeweller will charge GST @ 3% on Rs. 1,00,000. It is important to note that this supply is a composite supply as defined under section 2(30) comprising of supply of Gold ornament along with supply of ornament making services. Gold ornament being the principal supply, the entire value of taxable supply shall be charged @ 3% as per section 8 of the CGST Act.
2. Customers walks in to a Jeweller showroom and buys a Gold ornament worth Rs. 1,00,000 and the Jeweller charges separately for Gold and making charges
In this case, since the consideration for both Gold and making charges have been disclosed separately in the invoice by the Jeweller, the supplies will be taxable at their respective applicable rates, i.e. Gold @ 3% and making charges @ 18%.
It is important to note that the making charges should not be confused with the Job work in relation to Gold. 5% rate of Job work charges shall be applicable on the charges paid by the Jeweller to the Karigar (Job worker).
3. Customer gives old jewellery and in return buys a Gold ornament worth Rs. 1,00,000
The old jewellery given by the Customer does not constitute supply under GST law. As per section 7 of the CGST Act, one of the essential elements of supply is furtherance of business of the person making the supply. In the instant case, sale of personal jewellery by a customer does not constitute furtherance of business by the customer.
Further, as per notification no. 10/2017 (CT and UT Act), dated 28 June 2017, local purchase of second hand goods by a registered dealer (Jeweller in this case) is exempt from tax provided the dealer pays tax at the time of resale on the value determined as per Valuation rules.
As regards the tax on the sale of new jewellery in return for the old jewellery, same principles as discussed in cases 1 and 2 would apply.
4. Customer sells old jewellery to the Jeweller and does not buy anything in exchange
The subject transaction does not constitute supply for the reasons discussed in case 3. Accordingly, there will be no tax implications in this case.
It is important to note that in cases 3 & 4, it is desirable for the Jewellers to obtain suitable KYC documents, declaration from the customers in order to substantiate the fact that the sale of old jewellery by the customers is not in the course of business.
5. Customer owns 20 gm gold and gets a gold bangle made from the Jeweller. The Jeweller charges Rs. 5,000 as making charges from the customer and pays Rs. 2,000 to the Karigar
The supply of gold by the customer to the Jeweller for the purpose of making bangles will not fall under the definition of “Job work” under the GST Act due to the fact that the customer will be an individual who is not a registered person under the GST Act.
As per section 2(68) of the CGST Act, job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job work” shall be construed accordingly.
Therefore, the concessional rate of 5% of Job work in relation to gold shall not apply in the instant case and the Jeweller shall charge GST @ 18% on the making charges.
It is to be noted that the making charges paid by the Jeweller to the Karigar (job worker) will attract GST @ 5% under reverse charge (assuming that the Karigar is not a registered person).
III. Valuation of Old Jewellery on Sale as per Rule 32(5) of the Valuation Rules
As per Rule 32(5) of CGST Rules, 2017, the value of supply in case of a person dealing in buying and selling of second hand goods, shall be the difference between the selling price and the purchase price. However, the following conditions need to be fulfilled:
a. used goods are sold as such or after minor processing which does not change the nature of the goods
b. no input tax credit has been availed on the purchase of such goods
Therefore, in view of the above provisions, a Jeweller need not charge tax on the entire value of second hand goods. GST should be charged only on the differential value. This is based on the fundamental concept of GST that tax should be levied only on the value addition since the purchase price of the second hand goods has already suffered tax at the time of its original sale.
It must be noted that one needs to ensure that suitable documentation is maintained by the Jeweller to show that the conditions prescribed under rule 32(5) have been duly complied with. However, in cases where the old jewellery is completely remade after melting or it is not possible to substantiate that only minor processing has been done, it is advisable that the Jewellers charge GST on the entire value of old jewellery being sold.
IV. Job work procedure
There are provisions under the GST law which permit transfer of goods to the job worker on a challan (as per rule 55 of the CGST Rules) without payment of taxes. The details of the same are to be filed on a quarterly basis.
The Jewellers need to ensure that the movement of goods to/ from the job worker is strictly in accordance with the provisions of Rule 45 and 55 of the CGST Rules, 2017.
Further, in case the job-workers have a turnover of more than Rs. 20 lacs or are involved in inter-state supplies, it is mandatory for them to obtain registration under the Act. In other cases, Jewellers will be required to discharge the GST liability under reverse charge mechanism. The GST paid will be available as ITC to the Jewellers irrespective of the fact whether the GST is paid under reverse charge or collected by the job-workers.
The author is a fellow member of the ICAI and a practising Chartered Accountant based in Delhi and can be reached at 9873106233 or firstname.lastname@example.org
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute any professional advice or a formal recommendation. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document or for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author.