2020 (4) TMI 690 - AAR - GST

Valuation - Input Tax Credit - Purchase and sale of second hand goods being old jewellery - applicability of sub-rule (5) of rule 32 of Central Goods and Services Tax Rules, 2017 - purchases made from the dealer from whom marginal scheme if applicable - purchases used / second hand gold jewellery from individuals who are not dealers under the GST and at the time of sale there is no change in the form/ nature of goods? HELD THAT - In the instant case, the supplier, i.e. the applicant is effecting the supply of second-hand jewellery which is taxable under the GST Act as it is covered under entry no. 13 of Schedule V to the Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017 which is taxable at 1.5% under the CGST Act and similarly taxable under the KGST Act, 2017 also at 1.5%. Hence the supplier satisfies the condition that the supply made by him must be a taxable supply. The supplier must be a person dealing in buying and selling of second-hand goods. It is seen that the applicant has admitted that he is purchasing used gold jewellery from individuals and selling the same, after cleaning and polishing them. He must not avail any input tax credit on the purchase of such goods. The goods so purchased must be supplied as such and if at all any process is involved, that must not change the nature of the product - it is clear that, subject to the condition of invoicing them as second hand jewellery , the applicant satisfies the second condition also. The valuation of the supply of second hand jewellery may be made as prescribed in sub-rule (5) of rule 32 of the Central Goods and Services Tax Rules, 2017. Whether ITC is allowed to be claimed if purchases are made from the dealer whom marginal scheme is applicable? - HELD THAT - The applicant, if he purchases the second hand goods from other registered persons, then the applicant can claim the input tax credit on such purchases if he is eligible to claim under section 16 of the GST Act, 2017 and in that case, he would become ineligible to apply marginal scheme for supplies of such second hand goods.

Summary

Issues Involved:
1. Applicability of Rule 32(5) of the CGST Rules, 2017 for valuation of second-hand gold jewellery.
2. Eligibility to claim Input Tax Credit (ITC) on purchases from registered dealers under the margin scheme.

Issue-Wise Detailed Analysis:

1. Applicability of Rule 32(5) of the CGST Rules, 2017 for valuation of second-hand gold jewellery:

The applicant, a private limited company registered under the GST Act, 2017, sought an advance ruling on whether tax should be paid on the difference between the selling price and purchase price as stipulated in Rule 32(5) of the CGST Rules, 2017 when dealing in second-hand gold jewellery purchased from individuals not registered under GST, with no change in the form or nature of the goods.

The applicant contended that they are in the business of selling used gold jewellery, which they purchase from unregistered persons and sell after cleaning and polishing without changing the nature of the goods. According to Rule 32(5) of the CGST Rules, 2017, the value of supply for second-hand goods should be the difference between the selling price and purchase price, provided the goods are sold as such or after minor processing that does not change their nature, and no input tax credit has been availed on their purchase. This rule aims to avoid double taxation on goods that have already borne tax once.

The applicant referenced a similar ruling by the Maharashtra Advance Ruling Authority in the case of Safset Agencies Private Limited, which dealt in old jewellery falling under Heading 7113 of the GST Tariff. The Maharashtra Authority had clarified that the provisions of Rule 32(5) are applicable to old jewellery purchased by the dealer, allowing them to avail the benefit of the Margin Scheme.

The Authority for Advance Ruling Karnataka confirmed that the applicant satisfies the conditions stipulated under Rule 32(5) of the CGST Rules, 2017, as they are dealing in second-hand jewellery, which is taxable under the GST Act, and the jewellery is sold after cleaning and polishing without changing its nature. Therefore, the valuation of the supply of second-hand jewellery can be made as prescribed under Rule 32(5).

2. Eligibility to claim Input Tax Credit (ITC) on purchases from registered dealers under the margin scheme:

The applicant also sought clarity on whether ITC is allowed if purchases are made from dealers under the margin scheme. The Authority noted that if the applicant purchases second-hand goods from registered persons, they can claim ITC on such purchases if eligible under Section 16 of the GST Act, 2017. However, if the applicant claims ITC on these inward supplies, they would not be eligible to apply the margin scheme for the valuation of such second-hand goods.

Ruling:

1. The valuation of the supply of second-hand gold jewellery purchased from individuals not registered under GST, with no change in the form and nature of such goods, can be made as prescribed under Rule 32(5) of the CGST Rules, 2017.
2. If the applicant purchases second-hand jewellery from registered persons, they are eligible to claim ITC on such inward supplies. However, claiming ITC would render them ineligible for the margin scheme of valuation as prescribed in Rule 32(5) of the CGST Rules for the outward supplies of such second-hand jewellery.