Background: It is rightly said “A gem cannot be polished without friction, nor a man perfected without trials”. This is in fact true for the biggest regulation GST which is rightly taking its time to evolve though with lot of friction and trials. The GST law on Gems and Jewellery as for any other trade is a unison of multiple taxation of Central Excise & State VAT.
Taxation on Gems & Jewellery: Before the implementation of GST, the Gems and Jewellery trade attracted Excise duty @ 1% and State VAT in range of 1% – 1.2% highest being 5% in the state of Kerala. It also attracted Import duty of 10%. Post GST a special rate has been carved out for Gems and Jewellery trade at 3% whereas Un finished Precious and Semi-Precious stones attracted GST @ 0.25%. Custom Duty continues on import at 10%. Wef 18/03/2018 all types of Precious stones attracts tax rate of 0.25%
Composite Vs Mixed Supply: Sec. 8 of CGST/SGST Act defines tax liability on Composite and Mixed Supplies. There are many instances of Composite supply in gems and jewellery trade like supply of jewellery (Principal Supply – Gold) along with the making charges (Allied Supply). However it is to be identified in each case what is the Principal Supply involved in the Composite supply. Eg. In Case of Diamond jewellery, diamonds which attract tax @ 0.25% are studded in the jewellery leviable to tax @ 3%. Though diamonds attract lower rate of tax and might weigh more in terms of Price but as the Jewellery is the Principal Supply the diamond jewellery would attract tax rate @ 3%.
Many Jewellers come out with Promotional schemes wherein the customer is being offered high end watches, cars etc. along with the supply of jewellery. These items are taxable at the highest tax slab of 28% and an attempt may be made to tax such combined supply as a mixed supply levying 28% on the sale of jewellery as well. In my opinion the car, watch etc. are given to promote the trade of jewellery and hence should not be treated as mixed supply and the jewellery should continue to be taxed at 3%. However in such instances proper records/documents have to be maintained by the jeweller to explain the promotional schemes and the intention of the scheme behind it.
Job Work: Many Jeweller get the jewellery manufactured from Karigars (Job Workers) which attract tax rate of 5%. The registered Job worker shall charge GST of 5% and collect it form the jeweller on whose goods the job work has been done. Sec. 2(68) of CGST Act defines Job Work to mean any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly. Thus any Karigar who performs any job on the goods of the supplier shall only be treated as Job Work under GST leviable to tax at the rate of 5%. It is pertinent to note that many jewellers though indulge in the repairing of the old and worn out jewellery but this may not be considered as job work as the goods are of un registered consumers and would be termed as labour work leviable to GST at 18%.
Place of Supply: The Place of Supply provisions as applicable to the supply of goods are squarely applicable to gems and jewellery trade. Accordingly, a jeweller who delivers the goods at its showroom/shop shall levy dual GST (CGST + SGST) whereas where there involves movement of goods to other state the transaction shall be treated as interstate supply and hence IGST would be levied. It is generally seen that the jewellers go to various markets across different states to procure raw material/finished goods and take delivery there itself and to avail the credit of ITC gets tax invoice from the supplier levying IGST. In such situation the supplier would get into trouble of not levying proper GST (CGST +SGST) and hence the supplier need to keep proper record to determine that the goods have been destined to other state.
Time of Supply: The time of Supply though is different for goods and services, the common principle is that the tax becomes payable on the basis of supply or advance receipt whichever occurs first. In case of jeweller, the tax becomes due when the jeweller receives payment or supplies the jewellery whichever is earlier. Many jewellers also run Gold Deposit scheme wherein the investor makes monthly payment of a fixed amount for 11 months and the jeweller contributes the 12th month instalment and supplies jewellery to the tune of the total collection. In this circumstances the jewellery is supplied after the end of 12th month however the GST is payable on the receipt of every instalment. It is important to note here that Vide Not. No. 66/2017 CT Dtd. 15/11/2017, the requirement to pay GST on receipt of advance against the supply of goods has been removed and has given a big relief to jewellers who are running this deposit scheme as now they have to pay tax only at the time of supply of goods and not at the time of receipt of advance. It is to be noted that no such relaxation has been granted in case of Supply of Services (Job Work/labour work).
Reverse Charge Mechanism: The Reverse Charge Mechanism as prescribed in Sec. 9(3) and Sec. 9(4) is squarely applicable to Gems and Jewellery industry. Though Sec. 9(4) has been kept in abeyance from 13/10/2017 until 30/06/2018, Reverse Charge Mechanism u/s 9(3) of CGST and Sec. 5(3) of IGST is in operation. An unwanted confusion arose when in some section of the media it was speculated that reverse charge u/s 9(3) would be applicable in case a jeweller purchases old jewellery from the end consumer. However it was clarified on 13/07/2017 vide a Press release that even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly the sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.
Supply by SEZ Units: It is observed that many Gems & Jewellery units are located in SEZs and they supply goods to Domestic Tariff Area (DTA) in India. These transactions are to be treated as Inter State transaction as per Sec. 7(5) of IGST Act while as per Sec. 30 of SEZ act it shall be considered as import of goods. With both of these laws in operation, the importer in DTA has to file bill of entry and has to pay basic Customs duty as well as IGST. Though the importer (DTA Unit) is eligible for input tax credit of IGST paid this is an apt case of double levy of tax i.e BCD and IGST.
Movement of Goods: There are many suppliers of jewellery who are registered in one State but may have to visit other States (other than their State of registration) and need to carry the goods (such as jewellery) along for approval. Further, in such cases if jewellery etc. is approved by the buyer, then the supplier issues a tax invoice only at the time of supply. Since the suppliers are not able to ascertain their actual supplies beforehand and while ascertainment of tax liability in advance is a mandatory requirement for registration as a casual taxable person, the supplier (jeweller) is not able to register as a casual taxable person. In view of the above difficulty, the Commissioner (GST) has come out with a Circular no. 10/10/2017 dtd. 18/10/2017 wherein it was clarified that the movement of goods for other than supply like approval etc can be done on the basis of a Delivery Challan and as soon as the Supply fructifies the Tax Invoice be issued. It is further clarified that all such supplies, where the supplier carries goods from one State to another and supplies them in a different State, will be inter-state supplies and attract integrated tax in terms of Section 5 of the Integrated Goods and Services Tax Act, 2017. Further it is to be noted that e way bill has become mandatory for interstate movement of goods wef 1st April, 2018 however as per Annexure to Rule138 (14) following goods are exempted for generation of e way bill which includes:
|Sr. No.||Description of Goods|
|4.||Natural or Cultured Pearls and Precious and Semi-Precious Stones; Precious Metals and Metals Clad with Precious metal (Chapter 71)|
|5.||Jewellery, Goldsmith’ and Silversmiths’ wares and other articles (Chapter 71)|
Effectively, the exemption covers entire Chapter 71 of Customs Tariff Act 1975 and hence E way bill is exempted for gems and jewellery.
Input Tax Credit: Seamless Input tax credit is the backbone of Goods and Service Tax. A jeweller is also eligible to claim ITC of all inputs, capital goods, packing material etc. except those barred by Sec. 17(5). In case of imitation jewellery which are also taxable @ 3% whereas the inputs & raw material like Copper etc. are taxable at 18%, the manufacturer is eligible to claim Refund of accumulated credit as it amounts to Refund of inverted tax structure u/s 54 of CGST Act.
Concluding: The Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 7 per cent of the country’s GDP and 15.71 per cent to India’s total merchandise exports. It also employs over 4.64 million workers. One of the fastest growing sectors, it is extremely export oriented and labour intensive. The implementation of GST in Gems and Jewellery has not only brought uniformity in the trade but the lower rate of tax has also brought in good compliance of the law and has strengthened to make India a competitive market for Gems & Jewellery.