CA LALIT MUNOYAT

CHAPTER – 1:  LEVY OF EXCISE DUTY ON ARTICLES OF JEWELLERY

1) When ,in the recent past, excise duty on articles of jewellery was levied?

The excise duty on Article of jewellery was levied w.e.f. 01-03-2006 @2% of the assessable value of the sales.

2) What did   “Articles of Jewellery” mean?

The articles of jewellery mean:

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..

d. However these articles  do not cover articles in which precious metal is present as minor constituents only, such as minor fittings or minor ornamentation (for example, monograms, ferrules and rims) and paragraph.

e. “Precious Metal” means silver, gold and platinum.

f. “Platinum” means platinum, iridium, osmium, palladium, rhodium and ruthenium

3) What were the conditions for levy of duty on articles of jewellery?

In order to attract this levy the following conditions were required to be fulfilled:

a. The articles of jewellery must be of the type covered under heading 7113 of Central Excise Tariff Act and such articles must have  brand name or trade name  indelibly affixed or embossed on the articles of jewellery itself.

b. “Brand name” or “Trade name” meant a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

c. There was no duty on unbranded articles of jewellery or branded articles on which the brand name or trade name was not indelibly affixed or embossed on the article itself.

d. The articles of jewellery must be manufactured and for this purpose the processes of affixing or embossing trade name or brand name on articles of jewellery under sub-head 7113  amounted to ” manufacture”.

4) What type of items of articles of jewellery were prescribed under heading 7113?

The following is the list of articles covered under heading 7113

Articles of Silver
7113 11 10 Silver articles of Jewellery with filigree work
7113 11 20 Silver Jewellery studded with gems
7113 11 30 Other Silver articles of Jewellery
7113 11 90 Parts
Articles of Gold
7113 19 10 Unstudded
7113 19 20 Set with pearls
7113 19 30 Set with diamonds
7113 19 40 Set with other precious and semi precious stones
Articles of Platinum
7113 19 50 Unstudded  jewellery
7113 19 60 Parts of platinum
7113 19 90 Other items of platinum
7113 20 00 Of base metal clad with precious metal

5) Under what authority was duty levied on articles of jewellery ?

The duty was levied under the authority of Notification no. 05/2006 CE dated 01-03-2006 which provided as under:

Sr. No. Tariff Heading Description of Article of jewellery Minimum rate of excise duty Condition
24 71 (I) Articles of—
(a) gold,
(b) silver,
(c) platinum,
(d) palladium,
(e) rhodium,
(f) iridium,
(g) osmium, or
(h) ruthenium;
Nil This exemption shall not be applicable to articles of jewellery of heading 7113 on which brand name or trade name is indelibly affixed or embossed on the articles of jewellery itself.
26 7113 Article of jewellery on which brand name or trade name is indelibly affixed or embossed on the articles of jewellery itself. 2% NIL

6) What were the provisions for manufacture of articles of jewellery on JOB WORK

The job work provisions were contained in Rule 12AA of the  Central Excise Rule 2002 which provided as under:

a. The person who gets articles of jewellery manufactured on job work basis (called jeweller) from other person (called job-worker) then the jeweller 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. However, instead of the jeweller, the job worker may opt to comply with all the relevant provisions of these rules, then the jeweller shall not be obliged to comply with all the relevant provisions of these rules, which shall be done by the Job worker.

c. For the purpose of this rule, “job worker” means a person engaged in manufacture or processing on behalf and under the instructions of the jeweller from any inputs or goods supplied by the jeweller so as to complete a part or whole of the process resulting ultimately in manufacture of articles of jewellery falling under heading 7113 .

CHAPTER – 2:  REMOVAL  OF EXCISE DUTY ON ARTICLES OF JEWELLERY

7) When ,in the recent past, excise duty on articles of jewellery was removed ?

The duty on articles of jewellery was removed on July 6, 2009

8) Under what authority was duty REMOVED on articles of jewellery ?

The duty was removed vide notification No. 15/2009-C.E., dated 7-7-2009 which amended the notification 05/2006 CE dated 1-03-2006 in such a way that the rate of duty of 2% which was prevailing hitherto was replaced by NIL. The relevant part of the amending notification was as under

Notification no. 15/2009 CE dated 7-7-2009

Sr. No. Tariff Heading Description of Article of jewellery Minimum rate of excise duty Condition
26 7113 Article of jewellery on which brand name or trade name is indelibly affixed or embossed on the articles of jewellery itself. Nil (replaced for 2%) NIL

9) What was the effect of the above notification?

The effect of the above notification was such that  all the articles of jewellery , whether branded or unbranded , were fully exempt from the excise duty.

CHAPTER – 3:  REINTRODUCTION  OF EXCISE DUTY ON ARTICLES OF JEWELLERY

10) When was the excise duty REINTRODUCED on the articles of jewellery?

The excise duty on articles of jewellery was REINTRODUCED on 28th February 2011. The rate was 1% ad valorem.

11) What was the modus operandi of reintroducing excise duty on articles of jewellery?

a. A new notification no. 5/2011 CE dated 1-3-2011 was introduced which omitted entry No. 24, item (I) and also omitted entry no. 26 of notification 05/2006 CE dated 1-03-2006 (Q-5 above). Thus the exemption provided to articles of jewellery was withdrawn.

b. One more new Notification No. 1/2011-Central Excise dated 1st March 2011 was issued which, at entry no. 88 & 89 provided the rate of duty on articles of jewellery and articles of precious metal manufactured or sold under a brand name @ 1% ad valorem. The relevant part of the notification is as under:

88 7113 Articles of jewellery manufactured or sold under a brand nameExplanation. – 1. For the purpose of this exemption, ―brand name‖ means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

2. Hallmarking of the jewellery shall not be considered to be branding.

3. An identity put by a jeweller or the job worker, commonly known as ‘house-mark‘ shall not be considered as brand name.

89 7114 Articles, other than jewellery, of—(a) gold,

(b) silver,

(c) platinum,

(d) palladium,

(e) rhodium,

(f) iridium,

(g) osmium, or

(h) ruthenium,

manufactured or sold under a brand name.

Explanation. – 1. For the purpose of this exemption, ―brand name means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of  indicating, or so to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

2. An identity put by a jeweller or the job worker, commonly known as ‘house-mark‘ shall not be considered as brand name.

3.’articles’ in relation to gold shall mean anything ( other than ornaments), in a finished form, made of, or manufactured from or containing, gold and includes any gold coin and broken pieces of an article of gold but does not include primary gold, that is to say, gold in any unfinished or semi-finished form including ingots, bars, blocks slabs, billets, shots, pellets, rods, sheets, foils and

12) What are the conditions of this new levy of 1%?

a. Unlike the earlier scheme , in the new scheme there is no requirement that brand name should be affixed on the product itself. Where the goods are sold under the brand name, that may be sufficient. Like case, packing material etc. would be sufficient to conclude whether articles are sold under brand name or not.

b. Only such jewellery or other articles of precious metals which either bear or are marketed and sold under a brand name attract this levy. Whether a particular name or mark or symbol etc. is a brand name or not is a matter of fact, and can be ascertained from the manner in which it is understood in commercial or trade parlance. The test of goods being branded would be if the buyer seeks to buy the goods because they bear or are sold under a particular brand. As such, a mere mark of identity put by a jeweller or the job worker, commonly known as a “house-mark‟ shall not be considered a brand name.

c. Precious metals and stones are exempted from this levy.

d. As against the earlier scheme which covered “jewellery falling under heading 7113” only, the new scheme covers both i.e. “jewellery or other articles of precious metals falling under heading 7113 or 7114.

13) What are the new provisions of Rule 12AA: JOB WORK in article of jewellery?

a. Every person (called Jeweller) who gets article of jewellery or other articles of precious metals falling under heading 7113 or 7114 produced or manufactured on his behalf, on job work basis 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. The responsibility in respect of accountability of the goods, referred as above  shall lie on the Jeweller.

c. 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.

d. However a job worker has been given an option to obtain registration, maintain accounts, pay the duty leviable on such goods, prepare the invoice and comply with the other provisions of these rules. In such a case the provisions of these rules shall not apply to the Jeweller but shall apply to the Job Worker.

e. A “job worker” means a person engaged in manufacture or processing on behalf and under the instructions of the Jeweller from any inputs or goods supplied by the said Jeweller or by any other person authorized by the said Jeweller , so as to complete a part or whole of the process resulting ultimately in manufacture of articles of jewellery falling under heading 7113.

14) What are the other relevant provisions ?

a. For the purposes of this rule, article of jewellery shall mean articles of jewellery on which brand name or trade name is indelibly affixed or embossed on itself.

b. ‘Brand name or trade name‘ means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

c. If any goods or part thereof is lost, destroyed, found short at any time before the clearance of articles of jewellery falling under heading 7113 or waste, by-products or like goods arising during the course of manufacture of such goods, the said Jeweller shall be liable to pay duty thereon as if such goods were cleared for home consumption.

d. As in the case of branded garments, in case of goods falling under chapter heading 7113 and 7114 also, where a brand owner gets jewellery or articles other than jewellery made from any other person, and supplies the raw materials such as gold/ silver/ gemstones etc. (of chapter 71) to the job-worker for such manufacture, the duty liability would be on such person who gets jewellery or articles made from the job worker, unless the job worker opts to discharge the duty liability. However, a person manufacturing jewellery of heading 7113 or articles of heading 7114 bearing a brand name or sold under a brand name on his own account will be liable to pay excise duty unless he claims benefit of the SSI exemption.

e. Every manufacturing jeweller has the option not to be governed by this new 1% excise duty without cenvat credit. He may opt to avail cenvat credit of the raw materials such as gold/ silver/ gemstones etc. and pay duty @ 5 % ad valorem as provided by notification No. 02/2011-Central Excise , the 1st March, 2011.

f. The definition of “exempted goods” has been amended to include goods in respect of which the benefit of notification no.1/2011-CE is availed. This would imply that the credit attributable to such goods would have to be reversed when common inputs and input services are used for both these goods and otherwise dutiable goods.

g. Credit of duty paid on inputs or input services would not be available to a manufacturer of these goods. Credit of the duty paid on items that are being subjected to the levy of 1% would not be available to a manufacturer or service provider who buys them.

h. In respect of 1% duty regime the manufacturer of these goods cannot discharge the duty liability on them by utilizing Cenvat credit otherwise available in his books of accounts. It has to be paid in cash/bank only.

15) Are there any clarifications issued by the department on this matter?

Some illustrations have been provided to explain the scope of the term “brand name:

a. A manufacturer, say “ABC Jewellers”, getting jewellery or other articles manufactured on his behalf from gold smiths/ job-workers who put a mark/sign/initials, etc. on the jewellery/ article. This is only to identify that the article or jewellery was received from a particular goldsmith, etc. This is not branded jewellery and will not attract duty.

b. “ABC jewellers”, when it sells articles of jewellery to customers, puts a distinctive sign/ mark/ initials etc. on the jewellery- very often a simple acronym of his name e.g. ABC. It may be noted that mere alphabets or numerals (unless stylized) cannot be registered as a brand name or trademark. This is again for the purpose of identification when the customer re-sells or returns the jewellery or article and goods bearing it would not attract the levy.

c. “ABC jewellers” advertises and sells its products under the brand “Star” or puts a logo like ABC or ABC i.e. in a stylized manner. It also puts the same brand name or an abbreviation thereof or a mark which has a connection with such brand name either on the jewellery or article itself or on the packing such as the jewellery box or pouch or even on the warranty card or certificate of quality. Such goods will clearly be treated as branded and will be liable to duty.

CHAPTER – 4:  CONTRADICTIONS & CONFUSIONS

16) While introducing this 1% duty scheme it was the stated intention of the government to tax all the branded articles jewellery of heading 7113 or articles of heading 7114 and the requirement of the brand name or trade name being  indelibly affixed or embossed on the articles of jewellery itself was done away with. However Rule 12AA: Job Work : presents a contradictory view. Explanation 2 to the said Rule 12AA still provides that “For the purposes of this rule, article of jewellery shall mean articles of jewellery on which brand name or trade name is indelibly affixed or embossed on itself.”

17) Since the above condition has been prescribed in Rule 12AA which deals with JOB WORK in articles of jewellery, can a jeweller assume that if he is not manufacturing the articles of jewellery on  Job Work, the condition of the brand name being indelibly affixed or embossed shall apply and not otherwise.

18) As against the earlier scheme which covered “jewellery falling under heading 7113” only, the new scheme covers both i.e. “jewellery or other articles of precious metals falling under heading 7113 or 7114. However Explanation 1 to Rule 12AA still prescribes that  “job worker” means a person engaged in the manufacture or processing on behalf and under the instructions of the said person from any inputs or goods supplied by the said person or by any other person authorized by the said person, so as to complete a part or whole of the process resulting ultimately in manufacture of articles of jewellery falling under heading 7113 of the First Schedule to the Central Excise Tariff Act, 1985, and the term “job work” shall be construed accordingly. Does it mean JOB WORK does not entail manufacture of other articles of precious metals falling under heading 7114?

19) VALUATION: The duty @ 1% is payable ad valorem at transaction value u/s 4 of the Central Excise Act 1944. However in cases of large manufacturers where the jewellery is manufactured say, in MUMBAI and a part of it is sold in Mumbai and balance is depot transfer to Delhi, Kolkata, Chennai , Bangalore etc. how should the assessable value be decided?.

RULE 7 OF CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES, 2000 addresses this type of situation. It is provided that where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as “such other place”) from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment. This situation can be explained with example as under:-

S.N. Place of manufacture/Depot Qty. in Kg. Date of Sale/Transfer Rate/Kg. (in Lakhs) at factory/Depot as the case may be
1 Manufacturing 25 Kg 30-04-11 21.50 Lakhs/Kg
2 Sale in Mumbai 25 Kg 01-05-11 22.00 Lakhs/Kg
3 Transfer to Delhi 25 Kg 05-05-11 22.50 Lakhs/Kg
4 Arrival at Delhi 25 Kg 07-05-11 23.00 Lakhs/Kg
5 Sales at Delhi 25 Kg. 15-05-11 20.00 Lakhs/Kg
6 Transfer to Kolkata 25 Kg 18-05-11 20.50 Lakhs/Kg
7 Arrival at Kolkata 25 Kg 20-05-11 21.00 Lakhs/Kg
8 Sale at Kolkata 25 Kg 24-05-11 21.50 Lakhs/Kg.
9 Transfer to Chennai 25 Kg 26-05-11 23.00 Lakhs/Kg
10 Arrival at Chennai 25 Kg 28-05-11 23.00 Lakhs/Kg
11 Sale at Chennai 25 Kg 03-06-11 22.50 Lakhs/Kg

In the above cases, the excise duty payable in MUMBAI on the date of sale/transfer to Depot will be calculated on the basis of the rate prevailing on the date or removal at the Depot.

1 Sales in Mumbai 25 Kg 01-05-11 22.00 Lakhs/Kg
2 Sales at Delhi 25 Kg 05-05-11 22.50 Lakhs/Kg
3 Sales at Kolkata 25 Kg 18-05-11 20.50 Lakhs/Kg
4 Sales at Chennai 25 Kg 26-05-11 23.00 Lakhs/Kg

If assuming that on the date of removal there was no sale at that depot of that variety of product than the rate of sale at that depot prior to removal from factory which is nearest to the date of removal from the factory shall be adopted for assessment . Price change after removal of goods from factory does has no effect on the assessable value. Thus, no differential duty is payable if goods are sold from depot later at higher prices. Similarly, no refund is permissible, even if goods are actually sold from depot later at lower prices.  In short, price ruling at the depot, but at the time of removal from the factory will be relevant. It does not matter if subsequently the goods are actually sold from depot at higher or lower price.

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CA LALIT MUNOYAT
B.Com.(Hons.), CS, FCA, DISA
munoyat@gmail.com
98201 93508

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