Traders of second-hand gold ornaments not eligible for GST margin scheme

[CA Bimal Jain]

The AAR, Kerala, in the matter of IN RE: M/S. BEST MONEY GOLD JEWELLERY LTD. - 2023 (7) TMI 523 - AUTHORITY FOR ADVANCE RULING, KERALA ruled that value of gold will not diminish even if it is exchanged among 10 different users in a span of 2 years as a jewellery piece of 22 carats remains 22 carats even after changing hands. Thus, the term ‘second hand’ does not hold any meaning when it comes to items such as gold, land, currency. Accordingly, the assessee would not be eligible to value gold ornaments as per Rule 32(5) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules”).

Facts:

M/s. Best Money Gold Jewelry Ltd (“the Applicant”) is engaged in the business of buying and selling of old/second-hand gold jewellery from unregistered persons and make minor processing changes in the form of cleaning and polishing and sells them to other customers.

The Applicant submitted that since the jewellery was purchased from unregistered person and therefore, there was no scope for availment of the ITC as per Section 16 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

The Applicant filed an application for advance ruling before the AAR, Kerela seeking whether the Applicant qualifies to pay GST only on the difference between the selling price and purchase price as stipulated under Rule 32(5) of the CGST Rules.

Issue:

Whether the Applicant qualifies to pay GST only on the differential amount between the selling price and purchase price of second hand gold jewellery being equivalent to trading of second hand goods?

Held:

The AAR, Kerala, in IN RE: M/S. BEST MONEY GOLD JEWELLERY LTD. - 2023 (7) TMI 523 - AUTHORITY FOR ADVANCE RULING, KERALA ruled as under:

• Stated that, value of gold will not diminish even if it is exchanged among 10 different users in a span of 2 years, a jewellery piece of 22 carats will remains a jewellery of 22 carats even after changing hands. Since the duration of use does not affect the value of the gold therefore, the concept of depreciation is not applicable in the case of gold and gold jewellery.
• Noted that, dealing in gold cannot be construed as dealing in second-hand goods and thus, Rule 32 (5) is not applicable and Section 15 of the CGST Act will be used as valuing gold ornaments.
• Observed that, the intention of Rule 32(5) of the CGST Rules is to reduce the tax burden on such goods, which have already suffered tax on its highest value, when supplied at a reduced price in the secondary market after usage. However, this is not the case with goods such as gold and gold ornaments.
• Held that, gold in any form fails to pass the test of second-hand goods thus, the Applicant would not be entitled to value goods as per Rule 32(5) of the CGST Rules.

Relevant provision:

Rule 32 of the CGST Rules:

“Determination of Value of Supply:

32 (5) Where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored:

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.”

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