1.1. COMPOSITE SUPPLY
A composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
For example , Diamond studded gold jewellery will attract tax rate of 3% as the principal supply is of gold and diamond is an allied supply.
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
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).
1.2. MIXED SUPPLY
Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply
For example : a gold jewellery studded with precious stones can be considered as mixed supply as both of them can be supplied individually and is not dependent on each other.
2. PLACE OF SUPPLY
As per Section 10 of IGST act 2017, the place of supply in case of gems and jewellery would be same as place of supply of goods.
A Jeweller delivering goods at its showroom/shop shall levy CGST+SGST and where movement of goods to other state comes into picture IGST is attracted .
Jewellers travel markets across different states to procure raw material /finished goods and take delivery there itself and to avail the input tax credit gets the tax invoice from the supplier and the supplier also needs to maintain records to determine where the goods have been destined.
3. TIME OF SUPPLY
Common principle in case of time of supply is tax becomes payable either on the basis of supply or advance receipt whichever occurs first.
Tax becomes payable in case of gems and jewellery either when the jeweller receives payment or supplies the jewellery whichever is earlier.
4. REVERSE CHARGE MECHANISM (RCM)
“Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act. Thus if supplier of goods / services is unregistered and receiver is registered in that case GST will be paid by the receiver at applicable rates i.e. 5% of Value.
Example: ABC Jewellers (Registered under GST) supplies 10 kgs of raw gold to D (unregistered), a job-worker for purification, finishing and other ancillary activities. D performs above said work and charges Rs.1000 for above job-work performed by him.
Now in this case ABC Jewellers are registered and availing supply from Mr. D who is unregistered and accordingly tax will be paid under reverse charge by ABC Jewellers @ 5% (applicable rate for Job-workers relating to Jewellery ) and credit of the same is available.
The jeweller or the supplier of goods will issue an invoice along with payment voucher while making a sale to an unregistered person in case of paying taxes in reverse charge.
If the supply received from unregistered person/persons does not exceed 5000 in a day no GST will required to be paid by the registered person as per Notification No.8/2017.
5. INPUT TAX CREDIT (ITC)
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.
6. COMPOSITION LEVY SCHEME
As per Section 10 of CGST ACT 2017
A registered person, whose aggregate turnover in the preceding financial year did not exceed seventy lakh rupees, may opt to pay, tax under composition scheme.
Rate of tax under composition scheme –in case of manufacturers- 1% cgst+1%sgst
In case of traders rate of tax is 1%.
7. JOB WORK
As per section 2(68) job work mdefines 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.
So as per definition above job worker or karigar, if performs any task on the goods supplied by the jeweller it will treated as job work and 5% GST will be applicable if registered.
Job work performed on old or worn out jewellery as indulges repairing it will come under the purview of labour work and not job work as goods are of unregistered customers and hence 18 % GST would be leviable.
Mandatory registration of job worker in case where turnover exceeds 20 lakhs or if involved in inter state supplies irrespective of the turnover.
While sending the goods to job worker premises the principal needs to prepare a delivery challan containing details like description of goods, quantity, market value, gst rate, name and address of job worker. Disclosure of delivery challan should be made in gstr-1
8. E-WAY BILL
The issuance of E-way bill has been exempted under gems and jewellery sector.
EXEMPTIONS UNDER GEMS AND JEWELLERY SECTOR
9. GST RELAXATIONS AVAILABLE IN GEMS AND JEWELLERY SECTOR
10. EXPORT UNDER GEMS AND JEWELLERY
As per GST regime, in case of export payment of tax needs to be made on procurement of material and then claim refund .prior payment of tax disturbs the working capital of diamond merchants , as diamond is the most export oriented precious materials.
A relief has been granted to the Exporters of precious stones –A Fast Track Provision Refund procedure initiated by the government which states that 90% of the provisional refund will be granted within a period of 7 days of receipt of acknowledgment of making of application of refund.
11. SUPPLY FROM SEZ UNITS
Many of the gems and jewellery units are located in SEZ units. Supply of goods from SEZ units to domestic tariff area are considered as import of goods as per section 30 of SEZ act and is also considered as Inter State transaction as per section 7(5) of IGST act 2017. This is a simple case of Double levy of tax as the importer has to pay both BASIC CUSTOM DUTY and IGST. The Importer in DTA has to file a bill of entry.
The importer can claim ITC of IGST paid.
12. GOLD DEPOSIT SCHEME
In this scheme, the investor or the customer deposits a certain sum of money as instalment with the jeweller.
In this scheme all instalment i.e,11 months is supposed to be paid by the investor only the last instalment of the year i.e. 12th instalment would be paid by the jeweller.
In this case , the GST is being every month but the goods are being supplied at the end of 12th month which was creating a burden on the jewellers.
In this perspective ,Government passed a Notification No.66/2017 dt15/11/2017 giving relief to the jewellers ,that tax would be when goods will be supplied and not at the time of receipt of advance.
13. SALE ON APPROVAL
Many of the jewellers travels across the states for supplying of goods to different buyers .In this case many buyers buy goods on approval basis which means they will purchase the goods after being satisfied with the quality of the goods .
In our GST regime we have learnt that whenever a goods being supplied or even left the premises of the supplier tax becomes payable irrespective of whether goods has been actually supplied or not.
The government has provided a relief to the jewellers by passing a circular no.10/10/2017 dated 18/10/2017 that sale on approval basis can be done on the basis of delivery challan and once the supply fructifies tax invoice will be issued.
It was further clarified that where goods are being carried from one state to another IGST will be applicable and generation of e-way is also mandatory.
As per section 31 (7) of CGST Act , the goods which were involved in sale of approval needs to be brought back within six months from the date of removal if not sold .
If goods are not brought back within the stipulated time it will be a deemed as a supply and hence will become taxable.
Goods sold in exhibition can be considered as one of the examples of sale on approval.
14. GST IN CASE OF PROMOTIONAL SCHEME
Promotional schemes is a temporary discount on one or more products or it can be in the form of a gift given along with the purchased goods .Promotional schemes helps the businesses to attract more customers.
Their treatment in tax would depend upon how they are being used .
R.S AND SONS JEWELLERS running a promotional scheme at their workplace that any one purchasing goods worth rs.50000 or above will get a gold coin as a free gift .
So here only the customer would be charged only for the purchased goods and not for the gold coin as it is a promotional gift and it should not be taxed or charged .
Tax should be charged on the goods @3% if it something made of gold or any other precious metals like diamond @.025% .
The jewellers only needs to maintain a record which will be helpful for explaining the promotional scheme and the intention behind it.
[CASE LAW-BIOSTADT INDIA LIMITED VS MAHARASHTRA AAR]
In this above case law, the applicant BIOSTADT LIMITED applied for claiming input on gold coins which were distributed through a promotional scheme to its customer .
The MAHARASHTRA AAR denies the claim of ITC of the applicant by taking the help of section 17(5) which states that ITC ON GIFTS cannot be claimed.
15. SUPPLY TO TOURIST
Supply in this case will always be Inter State and IGST will be paid.
Tourist will be granted refund but the burden of compliances of the jewellers will increase.
16. EXCHANGE OF OLD JEWELLERY
There will no implication of GST in case of purchase of new jewellery and return of an old one.
As per section 7of CGST Act 2017 supply includes all forms of supply made for a consideration by a person in the course of furtherance of business.
So sale of old jewellery for a consideration cannot be considered as supply hence no GST.
But where an unregistered supplier sales old gold to registered supplier GST will be applicable on reverse charge mechanism basis.
In this case marginal scheme can also be applied which means tax is to be paid on the amount of difference between the selling price of old jewellery and purchasing price of new jewellery but there will be no ITC.
Where applicant is in business of sale of used (second hand goods) gold jewellery, valuation of supply of second hand gold jewellery which are purchased from individuals who are not registered under GST and there is no change in form and nature of such goods, can be made as prescribed under sub-rule (5) of Rule 32.
17. RECENT AMENDMENTS
HALLMARKING OF GOLD JEWELLERY AND GOLD ARTEFACTS (AMENDMENT) ORDER, 2021
Hallmarking is guarantee of purity or fineness of precious metal articles.
This scheme has been introduced to protect the public against adulteration and to obligate manufacturers to maintain legal standard of fineness.
From 16th June, 2021 mandatory hallmarking on gold jewellery and gold artefacts has been initiated by the government. As of now ,hallmarking will be mandatory in seven districts of Delhi and in 19 districts in Uttar Pradesh, including Lucknow, Bareilly, Agra, Mathura, Jhansi, Meerut, Muzaffarnagar, Gorakhpur, Moradabad, Saharanpur, Gautam Budh Nagar and Varanasi.
The gold of additional carats 20, 23 and 24 will be allowed for hallmarking.
All old jewellery can get hallmarked as it is if feasible by the jeweller or after melting and making new jewellery