Duty on articles of jewellery @ 1%: Need for Clarification & Protection

CA Lalit Munoyat, FCA,DISA,CS

The Government of India, vide Circular No. 1025/13/2016-CX  dated 22^nd April, 2016,  has constituted the sub-committee of the High Level Committee to consider the issues related to compliance procedure for the excise duty, including records to be maintained, operating procedures and any other issues that may be relevant concerning the imposition of excise duty on Articles of Jewellery w.e.f 1^st March 2016.

In order to show the commitment of the government for mitigating the difficulties faced by the jewellers, it has issued Circular No. 1026/14/2016-CX dated 23rd April, 2016 by which time limit for taking central excise registration of an establishment by a jeweller has been extended up to 01.07.2016. Though the liability for payment of central excise duty will be with effect from 1^st  March, 2016, the assessee jewelers may make the payment of excise duty for the months of March, 2016; April, 2016 and May, 2016 along with the payment of excise duty for the month of June, 2016.

Having extended the time limit all associations have been given an opportunity to submit representation before the subcommittee in writing and the all India associations to state their case in person.

The response can be sent via e-mail to highlevelcommittee@gmail.com or by post addressed to the Office of the High Level Committee (HLC), Suite No. 215, The Janpath Hotel, Janpath Road, Opp. BSNL Building, New Delhi-110 001

Some of the points which I have come across which need clarification or protection are as under:

1) In order to be eligible to the concessional rate of duty of 1%, the articles of jewellery shall be manufactured from inputs or capital goods on which appropriate duty of excise leviable has been paid. Appropriate duty includes nil duty also. On failing to prove it, the duty at tariff rate i.e. 12.5% shall apply.

a) How to prove the duty paid character of the inputs used in the manufacture of articles of jewellery ?

b) On whom does the primary onus to prove the duty paid character of inputs lie ?

There are certain judicial decisions which suggest a way out for this situation.

in the case of Calcutta Paper Mills Manufacturing Company v. CEGAT and Ors. reported in 1986 (25) E.L.T. 939. The ld. Judge held:

“It is not possible for the petitioners to discharge onus that the base paper purchased by petitioners from the market is duty paid. The goods available in the market must be presumed to have been duty paid. It is absolutely impossible for a purchaser to know whether excise duty on the manufactured goods sold to the purchasers had already been paid by the manufacturers. If the purchaser has to satisfy the excise authorities that goods which he has purchased from the market suffers duty, it would impose a burden which no purchaser would be able to discharge. In the case of Sulekh Ram and Sons v. UOI and Ors. reported in 1978 (2) E.L.T. 525,1978 Delhi High Court has held that under excise system no goods can be removed from the place of manufacture without first paying the excise duty. Therefore, a purchaser can presume that the goods are duty paid. It would be incredible if the purchasers were required to ascertain whether Excise duty has already been paid by the manufacturer before the sale of such goods or not inasmuch as the purchasers have no means of knowing it.”

2) Under Rule 11CER 2002 goods can’t  be removed except on invoice which shall be serially numbered and shall contain the registration number, address of the concerned Central Excise division, name of the consignee, description, classification, time and date of removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of goods and the duty payable thereon.

a) What will happen when a salesman of a jeweller carry items of jewellery on approval and sale basis. He travels to different areas of the city and also to other cities of the same state and cities of other states?

b) How will the excise accounting be done when part of the abovestated consignment is sold and part of it is return to the shop or factory?

3) Job work in article of jewellery.-

a) Under Rule 12AA (1) of CER 2002 it is provided that every person who gets articles of jewellery or other articles of precious metals on his behalf, on job work basis (called the said person) shall obtain registration, maintain accounts, pay duty leviable on such goods and comply with all the relevant provisions of these rules, as if he is an assessee.

b) Sub rule (7)provides that “Notwithstanding anything contained in these rules, the job worker shall not be required to get himself registered or shall not be required to maintain any record evidencing the processes undertaken for the sole purposes of undertaking job work under these rules unless he has exercised his option in terms of the proviso to sub-rule (1).”

c) The proviso to sub-rule (1) was as under:-

“Provided that the job worker may, at his option, agree to obtain registration, maintain accounts, pay the duty leviable on such goods, prepare the invoice and comply with the other provisions of these rules and in such a case the provisions of these rules shall not apply to the said person.”

This proviso has since been omitted vide notification no. 8/2012 CE(NT) dated 17-3-2012.

Therefore the words “unless he has exercised his option in terms of the proviso to sub-rule (1)” in sub rule 7 need also to be omitted lest it may give an impression that a Job worker can undertake the responsibilities of the principal manufacturer.

4) Rule 22. Access to a registered premises.-           

a) It is provided that an officer empowered by the Principal Commissioner or Commissioner, shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

b) The said officer can also demand a list in duplicate of all the records prepared and maintained for accounting of transaction in regard to receipt, purchase, manufacture, storage, sales or delivery of the goods including inputs and capital goods, as the case may be;  all the financial records and statements including trial balance or its equivalent, cost audit reports  and the Tax Audit Report u/s 44 AB of the Income tax Act

The  above provisions are prone to misuse and can be used as an effective tool in the hands of excise inspectors to harass small jewellers and can also be a breathing ground for corruption. Suitable guidelines must be issued to prevent its misuse.

Rule 23 and 24:- Power to stop and search and detain or seize goods:- 

a) It is provided in Rule 23 that any Central Excise Officer, may search any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with the intention of evading duty.

b) It is further provided in Rule 24 that if a Central Excise Officer,  has reason to believe that any goods, which are  liable to excise duty but no duty has been paid thereon or the said goods were removed with the intention of evading the duty payable thereon, the Central Excise Officer may detain or seize such goods.

The  above provisions are also prone to misuse particularly in case of small jewellers who carry the jewellery on their person and sell them on approval and sale basis. They don’t operate from any shop but from a carry bag and  travel to different areas of the city and also to other cities of the same state and cities of other  states.

What documents should they carry to prove that the goods are duty paid or that they are not the manufacturer but a retail trader who buys jewellery from the open market and sale them in the open market ?. They are engaged in only trading of the articles of jewellery.

Readers are encouraged to submit their own observations which need further clarification and support.

(Author can be reached on munoyat@gmail.com # 9820193508)