No GST on Margin Difference of Second-Hand Gold Jewellery Purchase-Sale: AAR [Read Order]

The Karnataka Bench of the Authority for Advance Rulings (AAR) has recently ruled that, no Goods and Services Tax is payable on the price difference of purchase and selling of second-hand gold jewellery  after melting.

The applicant had sought advance ruling in respect of the following questions:

i. Whether the applicant purchasing second hand gold in the form of jewellery/parts of jewellery, from unregistered individuals and sells to registered/unregistered dealers, after melting the same, in the form of lumps/irregular shapes of gold, without changing the nature, (i.e.,) Gold remains gold, has to pay GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of CGST Rules, 2017?

ii. Whether the HSN Code for Old Gold Jewellery purchased and after melting the purchased old gold jewellery is 7113?

The applicant stated that they are engaged in the business of purchase and sale of used gold (second hand goods). They purchase the used old gold jewellery from the unregistered persons and sells the same to others after cleaning and polishing it.

The applicant has stated that they also melt the unsold Old used Jewellery / parts which remain unsold because of being outdated design / model or because of being excessively damaged beyond repair and they do not charge GST on the purchase of these old Jewelleries / parts as per Notification No. 10/2017- Central Tax (Rate) dated 28-06-2017 and pays the GST on outward supplies as per Rule 32(5) as stipulated in this Notification.

The applicant does not take any input on these purchases, it was further submitted.

The applicant also stated that the Rule 32(5) of the Central Goods and Services Tax Rules, 2017 provides for the valuation of taxable supply by a person dealing in buying and selling of second-hand goods.

The Rule 32(5) provides for the method by which the taxable value of a second hand goods supply is arrived and is applicable only if the following conditions are satisfied:

• The Supply made by the supplier is a taxable supply.
• The Supplier deals in buying and selling of second hand goods.
• The Supplier has done minor processing on such goods.
• The Supplier has not claimed Input Tax Credit on the purchase of such goods.
• The Supplier has not changed the nature of the goods.

The purpose of the provision is to prevent cascading effect and double taxation on margin scheme, the applicant submitted, placing reliance on M/s. Hiralal Ji Vs The State of Madhya Bharat in which the Supreme court upheld the decision given by the High court in favour of assesse and stated that since there is only change in the form and not in nature, VAT is not applicable on converting scrapped iron into bars.

V. Sudhindranath, Advocate and Duly Authorised Representative appeared for personal hearing proceedings held on behalf of the assessee and reiterated the facts narrated in the application.

The AAR bench of Dr M P Ravi Prasad and Kiran T Reddy observed that, the applicant had not satisfied all the conditions required to avail the benefit as per Rule 32(5) of Central Goods and Services Tax Act.

It was also noted that, “it is clear that tariff heading 7113 pertains to jewellery and parts thereof of precious metal which includes gold jewellery, and tariff heading 7108 pertains to gold in unwrought or semi-manufactured forms such as gold lumps or irregular shapes of gold. Gold jewellery are a distinct category of article having distinct characteristics and is not same as gold lumps. When the applicant melts the gold jewellery into gold lumps, the nature of goods changes in as much as the characteristics of the articles and the classification changes. Since the processing done by the applicant changes the nature of goods, they do not satisfy the second condition mentioned supra at para 10.2 and hence not eligible to avail the benefits of  Rule 32(5) of CGST Rules, 2017.”

It was thus ruled that, “The applicant purchasing second hand gold in the form of jewellery / parts of jewellery, from unregistered individuals and selling to registered / unregistered dealers, after melting the same, in the form of lumps / irregular shapes of gold, cannot pay GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of CGST Rules, 2017.”

The HSN Code for Old Gold Jewellery is 7113 and after melting into gold lumps or irregular shapes of gold the HSN Code is 7108. the authority bench observed.

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