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Jewellery stores remained empty on the first full day of GST (Goods and Services Tax) rollout on Monday as consumers stayed away from new orders after booking heavily last week.
Robust buying during the week to June 30 pushed jewellery sales up by 50 per cent as consumers advanced their orders to avoid higher payment outgo on price increase following GST rollout effective July 1. The tax independence, as coined by the government to explain GST levy, has made gold costlier by 1-2 per cent across the country.
Jewellery sales, therefore, declined by over 70 per cent on Monday due to the absence of footfalls in stores, which pulled the price of gold down by 1 per cent to hit the lowest in six-weeks on Monday. For jewellers under value added tax (VAT) earlier, gold has become costlier by 0.8 per cent as they used to pay 1.2 per cent of VAT and 1 per cent of excise duty. For jewellers outside the purview of VAT, overall duty was payable at 1 per cent in the form of excise. Now, jewellers across the board need to pay 3 per cent of duty now under the GST.
"The business was down by 70 per cent on Monday due to the absence of consumers to stores. Consumers had bought huge quantity of jewellery during the pre-GST week. Since this season is anyway dull, consumers seem to be confused with regard to applicability of GST rate," said said Nitin Khandelwal, Chairman, All India Gems & Jewellery Trade Federation (GJF).
A couple of jewellers, however, said that traders require clarifications over the treatment of GST on services. Under the current structure, 5 per cent GST is levied on job work. But, if they purchase scrap jewellery they would be treated as "agent" which attracts 18 per cent of GST on maing charges.
Surendra Mehta, National Secretary of India Bullion and Jewellers Association (IBJA) said, "All services including purchase of scrap jewellery would attract 5 per cent on jobwork for converting it into new."
The decline in fresh jewellery buying and fall in international prices have, however, pulled gold prices to the lowest in six weeks on Monday following global move. Standard gold in the popular Zaveri Bazaar here declined by 1 per cent or Rs 285 to close on Monday at Rs 28340 per 10 grams. Pure gold also followed suit and closed with similar decline at Rs 28485 per 10 grams. Silver also followed gold in spot market here to close with a decline of 1.07 per cent or Rs 420 to Rs 38660 a kg.
Trade sources estimate an over 70 per cent decline in their average daily sales with a marginal increase in scrap sales from farmers, presumably to purchase seeds and fertilisers for kharif sowing. During this time around, gold sales decline normally. But this year, consumers advanced their purchases by a week on fears of price rise due to GST levy which made effective tax rate 1-2 per cent higher than the prevailing.
"There are two primary factors that can be attributed to the gold price fall -- preponement of purchase from local consumers and decline in global prices due to interest rate increase by the United States Federal Reserves (US Fed) recently. Fresh buying remained virtually negligible on Monday being the first day of the GST implementation. Apart from that, jewellers remained confused about GST treatment on scrap purchase and new sales," said Khandelwal.
Trading currently at $1,231 an oz, gold prices in the international market have also fallen sharply in June. In India, however, bullion dealers continue to sell gold at a premium of $1 as they estimate decline in bullion import this week due to increase in GST levy. Traders expect gold supply to normalise next week.