Controversy emerged:
1. The short question, which is posed for the consideration is, whether gold bracelet/watch chain fitted with a watch can be said to be article of jewellery under HSN 7113 charging GST @ 3%?
2. Whether the sale of gold bracelet / watch chain along with a watch will fall under HSN 9113 @ 18% GST?
3. Whether gold bracelet/watch chain sold to a customer along with a watch can be considered as a composite supply falling under HSN 7113 @ 3% GST?
4. Whether gold bracelet/watch chain sold to a customer along with a watch can be considered as a composite supply falling under HSN 9113 @ 18% GST?
Introduction:
In India among general public there is a fascination for gold jewellery and this trend is popularizing globally. Many of the Indian Jewellery brands opened large number of branches in various countries and as per reports they are having good business with multi variety of their fascinating products. In India, gold jewellery as a precious metal has got dual role, one in the form of jewellery as a luxury item to wear and another as an investment. Even people with comparatively low income and teenagers to whom gold is not simply an investment, it’s an expression of their style and pride. Changing trends among general public, jewellers use to sell gold bracelet/chain with watch, in large numbers.
In spite of lapse of almost 7 years after the enactment of GST Act in India, the jewellers are not following a standardized method in charging GST on the sale of gold bracelet/chain, with or without watch.
(A) Some of them show in the invoice description of the article as bracelets and show the gross weight including the weight of the stone and watch if any and weight of jewellery as net weight. They charge GST @ 3% on the taxable value.
(B) Another group of jewellers show it as a composite supply of bracelet/watch chain and watch and show it in the same invoice, as separate items under different HSN code. They treat the gold bracelet/chain as their principal supply and being a composite supply charge GST @ 3% on both items.
(C) Still a section of the jewellers issues separate invoices for their supply of bracelet/watch chain and watch and charge the relevant GST rate on supply of each item, in accordance with its HSN code.
May be because of this disparity in the method of charging GST followed by different jewellers and anticipating possibility for getting huge additional revenue, recently the GST Investigation Wing conducted inspection/enquiries in business places of jewellers in various States, relating to GST liability on their supply of gold bracelet/chains fitted with watch or otherwise. They might have considered the Ruling of the Gujarat Authority for Advance Ruling, in the petition of M/s. House of Marigold NO. GUJ/GAAR/R/2018/20, dated 10th October, 2018. The summons issued for appearance and on the basis of the information provided during the course of personal hearing, indicate that the Department Authorities are yet to finalize the basis on which additional GST is to be imposed on the supply of gold bracelet/chain with watch.
Typical Business Situations:
1. Jewellers are basically engaged in retail trade in jewellery made of precious metals and various stones, through various showrooms. They also trade in articles made of gold and in related raw material and in incidental products. As there is space restriction in adding HSN code for each product in the application for registration under the GST Act, for showing the goods dealt in, in the application they might have shown only the principal items and not the items ancillary in nature. It is needless to state that the principal supply of jewellers is only articles of jewellery made of precious metal and stone.
2. A jeweller exhibits various jewellery articles in their showrooms for selection of the customers, including bracelet/chain made of precious metal and watch. Articles of Jewellery includes bracelet/watch chain and majority of the jewellery dealers get it designed and manufactured to fit it to a watch procured from the market. Bracelet/Watch chain made of gold is traded through jewellery showrooms only. On visiting a jewellery showroom, customers see various jewellery articles including bracelet/watch chain, select the items according to their choice and item-wise price is quoted, depending on the gold contend in the jewellery and making charge of each piece and charge GST considering the HSN Code under which the selected item is classified.
3. Jewellery articles stored in the showroom include bracelet/watch chain made of gold. Customers, who desire to wear large quantity of gold jewellery, purchase bracelet/chain with watch also, either for their daily use or for using the same in special occasion. Such articles dealt with by a jeweller fully satisfy the definition of the term ‘jewellery’. However, majority of the jewellers do not intend to be a dealer in watch and hence not store the same in large numbers and the watch in stock is not made of gold. It is to be specifically stated that the jewellers purchase watch chain from their vendors as jewellery paying GST @ 3%. They purchase watch not made of gold, from watch dealers paying GST @ 18%.
4. Being a jewellery retailer, their intention is to sell bracelet/chain as a jewellery article and the customer can select watch from a watch showroom according to their choice and can use the jewellery article as a watch strap. Customers’ whose primary intention is to purchase a costly watch having their own specification, follow this method. However, in such cases the jewellers provide the service of fixing the gold chain to the watch, which they purchase from watch dealers and bring to the jewellery showroom.
5. On the other hand, a customer intending to purchase a golden watch chain/bracelet, first select a watch chain and may ask for a watch (not of gold), disregarding its appearance or quality, which can be perfectly fitted to the watch chain selected. From the above facts it can be noted that a buyer whose intention is to purchase a watch will not come to a jewellery showroom first. Thus, neither the jeweller nor their customers have intended to sell / purchase watch dial from a jewellery show room and watch dial sale is not the principal supply of the jewellers.
6. In the total sales value of the gold chain and watch movement (not made of gold), almost 99% will be that of gold chain and only 1% will that of watch movement. Moreover, the jewellers offer exchange/repurchase guarantee for the gold chain that they sell and such guarantee or warrantee is not offered for watch movement sold.
In this discussion it is relevant to refer the following HSN Codes:
I. Chapter 71 Gold, silver, diamond, pearls and other precious metals.
“Articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal. Silver filigree work” HSN Codes: 71131110, 71131120, 71131130, 71131190, 71131910, 71131920, 71131930, 71131940, 71131950, 71131960, 71131990, 71132000.
Under SECTION-XIV, CHAPTER-71, against Note 9, it is provided that for the purposes of heading 7113, the expression ―articles of jewellery means to include bracelets and watch chain.
Under SECTION-XIV, CHAPTER-71, against Note 3(l), it is further clarified that this Chapter does not cover “articles of Chapter 90, 91 or 92 (scientific instruments, clocks and watches, musical instruments)”.
II. Chapter 91 Watches and clocks
“Watch straps, watch bands and watch bracelets, and parts thereof” HSN Codes: 91131000, 91132010, 91132090, 91139010, 91139090″.
Under SECTION-XVIII, CHAPTER-91, against Note 1, it is provided that this Chapter does not cover watch chain (heading 7131 or 7117, as the case may be).
From the above it is clear that though there is separate HSN Code for Watch Strap as 91131000, in the Note under Chapter 91, it is made clear that this Chapter does not cover item watch chains (heading 7131 or 7117). In Note 9 under Chapter 71 also it is clarified that Articles of Jewellery includes Watch Chain.
From the above it can be seen that in Chapter 71 bracelet/watch chain is classified under HSN Code 711319 and GST rate prescribed is 3%. Again, in Chapter 91 watch is classified under HSN Code 910129 and watch strap is classified under HSN Code 911310 and GST rate prescribed on both item is 18%. Therefore, in spite of multiple entries, clarity as to the classification of watch chain has been provided in the chapter, as per Note 3(l) & 9(a) in Chapter 71 and Note 1(b) in Chapter 91.
Regarding the query as to whether gold bracelet/watch chain fitted with a watch can be said to be article of jewellery, note that ‘watch chain’ and ‘bracelet’ are not defined under the Act and we have to dictionary meaning. The Hon’ble High Court of Gujarat at Ahmedabad, in the judgment in the case of State of Gujarat Versus M/s Titan Industries Limited, tax appeal No. 46 of 2017, it is held that:
“As per meaning of Jewel/Jewellery in Law Lexicon Dictionary means Articles manufactured from those for the purpose of personal adornment are known as articles of jewellery. Even hair pin, hat pin, buckles and other similar ornaments adapted for personal use or otherwise, and composed of base metal or imitation of precious metals and otherwise, some being set with imitation precious stones, are dutiable as jewellery. Even the dress having diamond on it predominantly can be in a given case said to be a jewellery. Mainly because the NEBULA Watch carries the mechanism of watch it will not loose the characteristic of jewellery”.
Therefor the characteristic of the product will not change even if it can be used for some other alternative purpose and it is the deciding factor in classification of the goods. The Gujarat AAR on application of M/s House of Marigold – Advance Ruling No. GUJ/GAAR/R/2018/20 dated 10th October, 2018 considered the same issue. The AAR decided that:
“As per the Explanatory Notes to heading 9101, watches of this heading must have cases wholly of precious metal or of metal clad with precious metal, which may be set with gem stones or with natural or cultured pearls and may be fitted with a cover or have a bracelet of precious metal (gem set or not). The product of the applicant is thus undisputedly watch with case of precious metal and covered by Chapter Heading 9101 in view of Chapter Note 2 of Chapter 91 as well as Explanatory Notes to heading 9101”.
It is true that one cannot wear a watch without a chain/strap but these are two separate items and can be purchased separately. Under Chapter 91, separate HSN code has been allotted for watch (91012900) and watch strap (91131000) and thus it is to be treated as separate items. However, the AAR in the above Ruling treated it as a single item, which may not be held good.
Therefore, in my humble opinion bracelet/watch chain sold in a jewellery showroom after getting it designed and manufactured to use it as a watch strap is a jewellery article and its character cannot be changed even if a watch is fitted to it. Watch chain/bracelet is a jewellery article as clarified under SECTION-XIV, CHAPTER-71, against Note 9. So, watch chain/bracelet is to be classified under HSN Code 711319, liable to be taxed to GST at the rate of 3%.
While considering the query, whether gold bracelet/watch chain and watch sold to a customer can be considered as a composite supply, first we have to consider whether watch chain/bracelet and watch are naturally bundled. There will not be a dispute in saying that watch and watch strap is naturally bundled, in which watch is the principal supply. Therefore, watch is naturally bundled with watch strap making it a composite sale.
On the other hand, one can wear bracelet, which is also used as a watch chain without a watch and hence both are not naturally bundled. Therefore, objection can be raised against treating the supply of bracelet/watch chain made of precious metal and watch as a composite supply.
An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who has sought the advance ruling and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State.
Conclusion:
After the enactment of GST Act and Rules, compliance with indirect tax laws in India has been improved drastically. However, delay in scrutinizing the returns and audit by the Department for finding out the intended or unintended tax leakage has not been reduced to the expected level. So, if the Department issue notice or conduct enquiry relating to a back period, especially on the basis of interpretation of law, the financial burden of the suppliers will be unimaginably huge. It will even put them to financial crises, because on Bonafide reasons, the suppliers might not have collected tax from the recipients and on the basis of the notice they cannot collect it again. Hence, clarity in tax laws will ease and improve the tax compliance further. Ease of tax compliance is an integral part of ease in doing business.
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