The West Bengal Authority of Advance Ruling has held that 3% GST payable on supply of secondhand gold jewellery or diamond jewellery after minor processing.
The bench of Tanisha Dutta and Joyjit Banik has observed that where the applicant purchases old/second hand gold jewellery or diamond jewellery from individuals and subsequently makes supply of it to the same person after minor processing or converting it into a new item, such shall be treated as supply of services and 3% GST shall be payable.
Table of Contents
Background
The applicant purchases second hand gold or diamond jewelleries from unregistered individuals and thereafter repairs or reshapes these items by melting the old jewelleries and transforming those into new pieces, such as changing a gold bangle into a bracelet or an earring into a locket. The final product is supplied according to the customer‟s requirements or order. Throughout this process, the nature of the ornaments remains the same, either as gold or diamond jewellery, depending on the customer‟s specifications.
The applicant purchases old / second hand gold or diamond jewellery from unregistered individuals without GST. The applicant then reshapes the old jewellery as provided by the buyer into a new one, which is considered a change in shape rather than a change in the nature of the goods. The making charges for this process include the cost of reshaping and any gold loss incurred. Additionally, the applicant does not engage in selling old /second hand jewellery. Instead, he purchases remaining gold and diamonds from registered dealers to meet the requirements when the individuals cannot provide enough materials for their orders.
The applicant purchases second hand gold or diamond jewellery from unregistered individuals and transforms them into new or refurbished pieces, charging only for the making process. The reshaping involves a change in shape but not in the nature of the jewellery. The gold and diamonds used are entirely provided by the buyer, and the making charges do not include the value of any gold loss.
Issue Raised
- Whether the applicant falls under the category of a person dealing in buying and selling of second hand goods where tax is to be paid on the difference between the selling and purchase price as stipulated in Rule 32(5) of the CGST Rules, 2017.
- Whether the transaction of purchases of old / second hand gold jewellery / ornaments or diamond jewellery / ornaments from individuals who are not dealers / registered under GST would tantamount to supply of goods or supply of services and whether the applicant is liable to pay tax on reverse charge basis against such purchases ?
- Whether the transaction would be classified as supply of goods and/or services under the act?
- Whether it shall be classified as supply of goods and chargeable to tax @ 3% under HSN: 7108/7113 or whether it shall be classified as supply of service and chargeable to tax @ 5% under SAC: 9988?
- Whether the applicant is liable to pay GST on the goods received from the buyer?
Conclusion
The AAR noted that after making purchases of old / second-hand jewelleries/ornaments, carries out the process of melting it to manufacture a new/different ornament, the applicant cannot adopt the valuation method as prescribed in rule 32(5). However, where the old gold ornaments/jewellery are purchased and subsequently supplied after minor processing that does not change the nature of the ornaments so purchased, the applicant can pay tax on the value as determined under rule 32(5).
The AAR opined that rule 32(5) is available only when a registered person dealing with buying and selling of second hand goods only. In other words where the registered person deals with different business activities such as engage in supply of services, manufacturing or selling new articles apart from dealing with buying and selling of second hand goods cannot avail the benefit of rule 32(5). In such a case GST is payable at applicable rate on actual value of the commodity and not on margin value.
The AAR stated that the applicant can avail the valuation method as prescribed in sub-rule (5) of rule 32 of the Central Goods and Service Tax Rules, 2017 only in cases where the old gold ornaments/jewellery are purchased and subsequently supplied after minor processing that does not change the nature of the ornaments so purchased. In cases where the applicant, after making purchases of old/second-hand jewelleries/ornaments, carries out the process of melting it to manufacture a new/different ornament, the applicant cannot adopt the valuation method as prescribed in rule 32(5).
The AAR ruled that where the applicant purchases old / second hand gold jewellery or diamond jewellery from individuals and subsequently makes supply of it to a different person after minor processing that does not change the nature of the ornaments, such shall be treated as supply of goods.
The AAR stated that where the applicant purchases old / second hand gold jewellery or diamond jewellery from individuals and subsequently makes supply of it to a different person converting it into a new item, such shall be treated as supply of goods.
The Authority opined that there the applicant purchases old / second hand gold jewellery or diamond jewellery from individuals and subsequently makes supply of it to the same person after minor processing or converting it into a new item, such shall be treated as supply of services.
What is the GST rate on purchases of second hand gold jewellery from individuals and subsequently makes supply of it to a different person converting it into a new item?
5% GST shall be payable where the applicant purchases old / second hand gold jewellery or diamond jewellery from individuals and subsequently makes supply of it to a different person converting it into a new item, such shall be treated as supply of goods
Applicant’s Name: Kundan Kumar Prasad
Date: 10/09/2024