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

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 gold and converting it into jewellery. This is because of a 3 per cent tax on gold 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 GST 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 GST rate on making charges will be 18 per cent but the output GST rate of gold jewellery is fixed at 3 per cent. Jewellers have to file for refund of excess GST paid,” said Surendra Mehta, National Secretary, IBJA.  

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, All India Gems and Jewellery Trade Federation (GJF). 

“We have urged the government to keep the GST rate on making charges for jewellery at ‘zero’ . We, however, won’t mind paying a maximum 3 per cent of GST 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 GST 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 GST rate on gold and gold jewellery in such a way that jewellers need not apply for refund or else allow jewellers to show gold and making charges content separately so that 3 per cent GST can be collected on the gold 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 GST Council is scheduled.

How GST works on ornaments made by job worker/manufacturer (Rs/kg)
Purchase	Gross amount (rounded off)	GST rate (%)	Total GST amount	Amount payable/receiveable to/ from supplier/customer
Gold	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
Sales
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