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Jewellers to suffer GST pain due to inverted tax structure

Paying more tax than collected from customers may block about three-fourths of their working capital

Dilip Kumar Jha  |  Mumbai 

gold,  jewellery

The goods and services tax (GST) could block about three-fourths of jewellers’ working capital and impact their profitability due to an inverted duty structure. 

Simply put, jewellers will collect less tax from customers than the tax they would have paid for buying and converting it into jewellery. This is because of a 3 per cent tax on and jewellery but 18 per cent tax on making charges.

Data compiled by the apex bullion dealers body, the India Bullion and Jewellers Association (IBJA), showed that the structure will block 87 per cent working capital. 

“Nearly 95 per cent of jewellers do not have their own manufacturing units and, therefore, make their jewellery through job workers/manufacturers. It clearly means that the input rate on making charges will be 18 per cent but the output rate of jewellery is fixed at 3 per cent. Jewellers have to file for refund of excess paid,” said Surendra Mehta, National Secretary,  

Considering jewellery manufacturing is a  labour intensive industry, blockage of working capital would be a big blow for the industry. 

“Jewellery manufacturers would be paralysed  with the blockage of funds. We met government officials who heard our problems  and found merit in our claim. The government would have to refund excess tax collected,” said Nitin Khandelwal, chairman, (GJF). 

“We have urged the government to keep the rate on making charges for jewellery at ‘zero’ . We, however, won’t mind paying a maximum 3 per cent of on making charges, similar to that in gold, which would help us avoid complications in compliance,” said Khandelwal. 

While the government is yet to clarify the applicable rate of on making charges, the industry presumes that the 18 per cent rate announced on entire job work facility will be applicable for jewellery making also. 

“We have requested the government to adjust the rate on and jewellery in such a way that jewellers need not apply for refund or else allow jewellers to show and making charges content separately so that 3 per cent can be collected on the component and 18 per cent on making charges from final consumers,” the representation submitted to the Finance Ministry said. 

The final decision is expected on June 11 when the next meeting of the Council is scheduled.

How works on ornaments made by job worker/manufacturer (Rs/kg)
Purchase Gross amount (rounded off)    rate (%) Total amount   Amount payable/receiveable to/ from supplier/customer
        3,00,000 3 9,000 309,000
6% making charges    18,000 18 3,240 21,240
Total Rs (A)      318,000   12,240 330,240
Jewellery (B)    321,000 3% 9,630 330,630
Difference (B–A)             3,000 (jeweller's profit)   2,610 (extra tax paid which jeweller has to claim) 390 (balance available on sale
of jewellery due to inverted duty
or excess tax paid by him)
%age of profit      87 13
Source: India Bullion and Jewellers Association

First Published: Sat, June 10 2017. 18:02 IST