Budget 2021 update: Few of the items on which Customs Duty Rates are revised are as follows:
– Reduced duty on copper scrap from 5% to 2.5%
– Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced
– Increased duty on solar inverters from 5% to 20%
– Raised duty on solar lanterns from 5% to 15%
– The basic customs duty on gold and silver reduced.
– The department will rationalise duty on textile, chemicals and other products
– The revised rates will be applicable from 2nd February 2021 onwards.

GST on gold in various forms can be discussed at length. GST subsumed VAT, service tax, excise duty and several other indirect taxes charged on domestic transactions. Tax on the making charges on gold jewellery was introduced under GST. On the other hand, basic customs duty continues to be collected on the import of gold from other countries and the levy of IGST.

Comparison of gold prices before and under GST

To set the context, the price of pure gold or bullion or gold bars includes the cost of extracting and processing the gold, and the profit margin, but does not include making charges. However, the price of gold jewellery additionally involves making charges. Up to 30th June 2017, taxes such as VAT and service tax were levied on its price. Thereafter, it was replaced by GST.

Let us take an example of the import of gold jewellery and compare its prices under pre-GST and the GST regime as follows:

 

Particulars

Before GST (Rs)

Under GST (Not as a composite supply) (Rs)

Under GST (As a composite supply) (Rs)

Base price of 10 gm gold 

(Assumed)

1,00,000

1,00,000

1,00,000

Add: Basic customs duty (10%)

10,000

10,000*

10,000*

Assessable value for service tax 

1,10,000

1,10,000

1,10,000

Add: Service tax (1%)

1,100

Nil

Nil

Assessable value for VAT

1,11,000

1,10,000

1,10,000

Add: VAT ( 1%**)

1,111

Nil

Nil

Assessable value for GST 

1,12,111

1,10,000

1,10,000

Add: GST on gold at 3%

Nil

3,300

Total value of gold

1,12,111

1,13,300

1,10,000

Add: Making charges at 10%^ 

(On base price+customs duty)

5,500

5,500

5,500

Assessable value for GST 

1,17,611

1,18,800

1,15,500

Add: GST on making charges at 5%

Nil

275

Add: GST on gold jewellery at 3%^^ 

(For composite supply)

3,465

Total value of gold jewellery

1,17,611

1,19,075

1,18,965

  1. *The customs duty rate was increased to 12.5% from the earlier 10% vide Finance Act 2019.
  2. **Assuming to be 1%, may vary with the state/UT
  3. ^Making charges vary with every jeweller. We are assuming it to be 10% in this case.
  4. ^^If the supply of gold jewellery is considered a composite supply, then the GST rate chargeable on the gold jewellery, including making charges, is 3%. Supply of gold is considered as the principal supply.

From the above comparison between ‘before GST’ and ‘under GST, as a composite supply’, we can see a price rise of Rs 1,354 which is an approximate increase of 1.1% under GST. The price rise is on account of the increased tax rate from 2% to 3% under GST on pure gold or gold bars.

Further, GST is newly levied on the making charges, and it was earlier not present in the erstwhile indirect tax regime. These factors have contributed to the price rise.

Budget 2019 also increased the customs duty on gold bars imported from outside India. It is 12.5% against the earlier rate of 10%.

GST on gold, GST on gold jewellery, and GST on gold coins

Gold bars fall within the definition of ‘Goods’ as per the GST law. Under Section 7 of the CGST Act, the supply of gold (without any job work) is considered the supply of goods.

As per Section 8 of the CGST Act, selling gold ornaments or jewellery to the common man is a composite supply of goods and services. The gold used is considered goods and making charges or value addition is towards job work. Since the principal supply is the sale of gold, the GST rate of 3% shall be levied instead of 5% on the total value of jewellery, whether or not making charges is shown separately. The CBIC has clarified this in its sectoral FAQs.

The GST registration threshold limits that commonly apply for normal taxpayers apply for businesses into gold mining and distribution as well. Further, the composition scheme under section 10 of the CGST Act is available to businesses selling gold.

Many gold merchants or sellers or jewellers take services of goldsmiths and specialists who carry out job work on the gold bars or gold biscuits supplied by them to make jewellery. It is considered as a supply of service. The goldsmiths will charge for their service known as making charges which will attract GST of 5%. If these goldsmiths or specialists are not registered under GST, the gold merchant or jeweller must pay GST at 5% on a reverse charge basis.

Consumers who approach the goldsmiths by themselves will also have to pay 5% as GST if the goldsmith is registered under GST.

GST is not charged if unregistered individuals sell gold jewellery or exchange gold ornaments to buy new ones at jewellery shops. It is not considered as furtherance of business and is out of the scope of supply under GST. However, if dealer or gold companies such as Attica Gold company, Aashraya Gold Company or Manappuram Gold Loan, etc. purchase and sell second-hand gold jewellery, GST applies on the value of such gold calculated as per the rule 32(5) of CGST Rules, after satisfying the conditions.

Repair works on jewellery will be considered the making charges for which GST is charged separately at 5%.

What are the GST rates on gold jewellery?

 

Particulars

HSN Code

GST Rate

(1) Precious stones (other than diamonds) and semi-precious stones, whether or not worked or graded but not strung, mounted or set

(2) Ungraded precious stones (other than diamonds) and semi-precious stones, temporarily strung for convenience of transport (includes synthetic or reconstructed stones, apart from unworked or simply sawn or roughly shaped)

7103, 7104

0.25%

Diamond, gold, pearls, silver, or articles of jewellery of silver or gold, and so on, including synthetic or reconstructed stones, unworked or simply sawn or roughly shaped

7101, 7102, 7106, 7107, 7108, 7109, 7111, 7113, 7114, 7116, 7118

3%

Job work in relation to cut and polished diamonds, plain or studded jewellery of gold, silver and so on

9988

1.5%

Are there any GST exemptions available for gold?

A GST exemption was announced at the 31st GST Council meeting on 22 December 2018. Accordingly, GST is not charged for the supply of gold made by the notified agency to GST-registered gold jewellery exporters.

The move has minimised the GST burden on Indian exporters of gold jewellery and probably made Indian gold exports more competitive on the world market. However, domestic buyers of gold jewellery are not impacted.

e-Way bill rules for gold and its forms

The CGST Rule 138(14) states that transporting gold in any form including jewellery, goldsmith’s wares and articles (Chapter 71), does not require an e-way bill. Hence, whether or not the supplier or recipient of gold is registered under GST can transport gold without carrying an e-way bill.

Availability of input tax credits in the gold business

The jeweller or gold merchant can claim Input Tax Credit (ITC) paid on the raw materials used, i.e., gold and other job work charges incurred. Even when the gold merchant pays tax on a reverse charge basis for supply from an unregistered job worker, he can claim the ITC on such tax.

Popular Advance Rulings on gold under GST

(1) Karnataka AAR in the case of M/s Attica Gold Pvt. Limited in order KAR/ADRG/15/2020 dated 23rd March 2020

Matter/Issue:

The applicant gold company offers spot cash for gold and releases the pledged gold at current market price registered under GST. In the case of second-hand purchase of gold from unregistered individuals if there is no change in the type/quality of the goods, then:

  1. Valuation: Whether the GST is charged only on the difference between the selling price and the purchase price, as provided in Rule 32(5) of the CGST Rules?
  2. ITC Claim: Whether the company can claim ITC if purchases are made from the dealer from whom the marginal scheme is applicable?

Ruling:

  1. Valuation: Yes, if the company raises invoice as second-hand goods or deals in it without any change in form/type of the jewellery purchased, the valuation of the gold jewellery purchased from unregistered individuals will be as per Rule 32(5) of the CGST Rules. The valuation for GST is the difference between the selling price and the purchase price if it is positive. However, if the purchase price is more than the selling price, then no GST is levied. Moreover, non-availment of the input tax credit will be an additional condition.
  2. ITC Claim: If the purchase of second-hand gold jewellery is from a registered person, ITC is available. In such a case, the margin scheme, as discussed above, will not be available for the gold company on its further sale.

(2) Maharashtra AAR in the case of M/s Biostadt India Limited in order GST-ARA- 72/2018-19/B- 165 Mumbai dated 20th December 2018

Matter/Issue:

The applicant company is into the business of crop protection chemicals and hybrid seeds. It launched a sales incentive campaign -Kharif Gold Scheme 2018. In simple words, the scheme offers a 10 gm and 8 gm gold coin to its customers for purchases above a certain quantity and for making minimum payments, respectively. The issue was as follows:

  1. ITC Claim: Whether the input tax credit can be availed on the procurement of gold coins used for conducting sales promotion?
  2. ITC Claim for similar schemes: Whether ITC is available for any other similar schemes

Ruling:

  1. ITC Claim: No, ITC is not available for claims for purchased gold coins. The distribution of gold coins is not the principal business of the taxpayer company in compliance with Section 16 of the CGST Act. Further, Section 17(5) on blocked ITC that prevails over Section 16 disallows ITC claims for disposal of any purchased goods as a gift. The distribution of gold coins under the scheme is also considered as a ‘gift’.
  2. ITC Claim for similar schemes: No, ITC is not available for claims for any other similar schemes.
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