Indian consumers are now likely to get a GST bonanza for old gold jewellery purchases. Now, the buyers will pay tax, only on the difference between purchasing and selling price.
In our day-to-day life, buying and selling old products is a common phenomenon. For every purchase, the product incurs GST in its total price amount. However, when a business entity refurbishes an old product and resells it. A tax is again charged on the value, resulting in double taxation.
To address this issue, GST Law has a provision known as the “Margin Scheme” that intends to resolve this anomaly. The margin scheme model applies to the person participating in the purchase and sale of second-hand commodities. GST is determined from the difference between purchase value and re-sale price of used goods in this scheme.
But the question is whether this Margin Scheme is applicable in the case of used/second-hand jewellery. Hence, whether GST will only limit to the difference between the selling price and purchase price, or would it be charged on the gross value?
This Aadhya Gold (P) Ltd. had raised this question before the Karnataka Authority of Advance Ruling (“AAR”). In this case, the applicant was buying used/second-hand gold jewellery from unregistered persons (“common man”). The applicant is a seller of used/second-hand gold jewellery, which the applicant used to purchase from the people. The applicant used to sell such ornaments in their original form after cleaning and polishing but without altering the nature of the ornament.
How will Margin Scheme impact?
Karnataka AAR observed that the applicant was not melting the jewellery to transform it into bullion and then recreating it into new jewellery. The applicant was only cleaning and polishing the old jewellery without changing the nature or form of the jewellery purchased. Thus AAR concludes that in this case, GST is payable only on the margin between the sale price and the purchase price.
This ruling will massively reduce the GST payable on an item that has the reputation of investment in India. In the present scenario, the industry is charging GST on the gross sale value received from the buyer irrespective of the underlying facts.
However, if the jeweller melts the old jewellery and uses the molten metal to create new jewellery. Then the resale of new ornament does not qualify for Marginal Scheme, as there is a change in the original form of the jewellery. Thus, in this case, the tax will practically be charged on the gross value.
But, after this ruling, mischievous dealers in the industry will melt their jewellery and use it to make new jewellery. While keeping the department in the dark, and continue paying tax under the Marginal Scheme. This will result in a significant loss for the department in the long run. For more such updates, keep watching this space!