Impact of GST on Jewelers and Taxation of Various Cases

Rates of Taxes applicable


Taxation of various transactions 
1.      Consolidated Bill: Customers walks into a Jeweler showroom and buys a Gold ornament worth Rs. 1,00,000.

a)      The Jeweler will charge GST @ 3% on Rs. 1,00,000.
b)      The charge would include Making Charges & Wastage
c)      Hence, it’s a composite supply as defined under section 2(30) comprising of supply of Gold ornament along with supply of ornament making services.
d)      Gold ornament being the principal supply, the entire value of taxable supply shall be charged @3% as per section 8 of the CGST Act.

2.      Itemized Bill: Customers walks in to a Jeweler showroom and buys a Gold ornament worth Rs. 1,00,000 and the Jeweler charges separately for Gold and making charges.

            i.        Making charges charge is an Independent Supply
            ii.      Gold Ornament Value including wastage Loss collected separately is an Independent Activity.
In this case, since the consideration for both Gold and making charges have been disclosed separately in the invoice by the Jeweler, the supplies will be taxable at their respective applicable rates, i.e. Gold @ 3% and making charges @ 18%.

3.      Input tax Credit

i.        ITC is seamless available for all the purchases used in furtherance of the business and not specifically restricted under 17(5).
ii.      Gold is not listed under section 17(5)
iii.    Hence, if the buyer is a seller or uses the jewelry in their business, they get ITC

4.      Purchase of Old Jewelry from customers for Cash

This is a transaction of inward Supply without payment of taxes i.e. unregistered purchases. Therefore the recipient of such supply is required to pay taxes under reverse charge mechanism.
Section 9(4) - The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Since Customers are not suppliers so no Tax is payable by Jeweler under 9(4).

Additional Cue: Notification No.10/2017: Local purchase of second hand goods by a registered dealer (Jeweler in this case) is exempt from tax provided the dealer pays tax at the time of resale on the value determined as per Valuation rules.

5.      Customer Exchanges old jewelry for new jewelry

As discussed above the old jewelry taken from the Customer does not constitute supply under GST law.

Now if the same article is repaired and re-sold with / without addition of additional Gold, then the Tax shall be charged only on the increment Value.

But if the supply is for a different ornament or there is major processing of the old item, then the Tax shall be levied on full value of the new gold ornament

Section 32(5): Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored:
So, the following, are conditions:
a.      Used goods are sold or after minor processing which does not change the nature of goods
b.      No input tax credit has been availed on the purchase of such goods

6.      Customer owns say 40gms Gold and an ornament from the jeweler. The jeweler charges making charges   from the customer say Rs. 10,000

The supply of gold by the customer to the Jeweler for making bangles will not fall under the definition Supply, no Tax.

Jeweler is doing “Job work” under the GST Act since the customer will be an individual who is not a registered person under the GST Act.

As per section 2(68) of the CGST Act, job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job work” shall be construed accordingly.

Therefore, the concessional rate of 5% of Job work in relation to gold shall not apply in the instant case and the Jeweler shall charge GST @ 18% on the making charges.

7.      Other pointed to be noted

In case of Old Gold Purchase, it is recommended to pay GST on RCM and take full credit, avoid future litigation.
Gold exchanged for new gold, liability s on the net transaction, since ITC is being paid and taken on the old gold, recommended to charge tax on full Transaction value.

Comments

Post a Comment

Popular posts from this blog

How does GST Work? Explained in 10 Points

Destination-Based Tax: GST is a destination-based tax as against the earlier principle of origin-based taxation. The new tax regime follows a multi-stage collection mechanism wherein tax is collected at every stage and the credit of tax paid (input tax credit) at the previous stage is available as a set-off at the next stage of transaction. This helps to eliminate ‘tax on tax’ or the cascading impact of tax. GST benefits the industry through better cash flows and better working capital management. From consumer point of view, GST helps to bring down overall tax. Input Tax Credit: The biggest game changer in GST is input tax credit, where credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This means that the end consumer will thus only bear the GST charged by the last point in supply chain, with set-off benefits at all the earlier stages. For example, a manufacturer's total tax on output co...
Read more

Impact of GST on Hoteliers

Registrations 1. Liable to register a. only if aggregate turnover of a person is >20 Lakhs in a financial year (>10 lakhs in North-eastern states, Uttarakhand, Sikkim) b. This threshold doesn’t apply to interstate supply i.e. in case supply is made to different states, even for Rs 1 of sales, registration has to be taken. c. Existing companies having VAT, service tax registration need to migrate to GST 2. Not Liable to Register a. Doing Pure catering services to an educational institution 3. Composition Scheme: Small restaurants with an aggregate turnover of above Rs. 20 Lakhs but less than Rs. 75 Lakhs, may opt for Composition scheme and pay tax at 5% of Inter-State/Union territory turnover. Conditions for opting Composition scheme are as follows: a. Registered person is not engaged in the supply of services other than restaurant service (Example: If registered person is providing accommodation services or renting of banquet halls along with restaurant se...
Read more

Salient Features of Finance Bill, 2018-Income Taxation

Image
1. No change in Tax Rate. All persons including individuals, HUF, Firms and Companies to pay same tax . However Education cess is being increased from 3 to 4 % to be known as Education and Health cess.  2. However for Domestic Companies having total turnover or gross receipts not exceeding Rs 250 crores in Financial year 2016-17 shall be liable to pay tax at 25% as against present ceiling of Rs 50 crore in Financial year 2015-16.  3. Long term Capital gain exemption under section 10(38) in respect of listed STT paid shares being withdrawn.  4. However capital gain up to 31.1.2018 shall not be taxed as cost of acquisition will be taken as Fair Market Value as on 31.1.2018.  5. Tax on STT paid long term capital Gain will be 10% under Section 112A. Further such tax will be liable for TDS.  6. Standard Deduction of Rs 40,000 for salaried employees. However benefit of transport allowance of Rs 19,200 and Medical Reimbursement of Rs 15,000 under Section 17(2) ...
Read more