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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.
1st February 2021
Union Budget 2021
The basic customs duty on gold and silver reduced from 12.5% to 7.5%. However, an additional cess called Agriculture Infrastructure And Development Cess (AIDC) will be levied at 2.5% above it.
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 |
|Under GST (Not as a composite supply) |
|Under GST (As a composite supply) |
|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|
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%.
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%.
|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)
|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%|
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.
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.
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.
• Karnataka AAR in the case of M/s Attica Gold Pvt. Limited in order KAR/ADRG/15/2020 dated 23rd March 2020
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:
• 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
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: