Scrap jewellery sales won't be affected by 3% GST levy

Jewellers say consumers can offset input credit on purchase of new jewellery against the old one

Sales of old gold jewellery are unlikely to be affected by the three per cent Goods and Services Tax (GST) levied on re-materialisation of used articles made of the precious metal.

Financial Services Secretary Hasmukh Adhia clarified on Wednesday that old gold jewellery would attract three per cent GST. However, jewellers say consumers needn't worry as they would get input credit in the invoice made for purchase of new jewellery against the old one. This means, three per cent of GST levied on the sale of old jewellery would be set off in the bill for new ornaments.

Losing Lustre: Gold recovery from scrap jewellery in India
Calendar year	Quantity	Total annual supply
2012	118.0	970.8
2013	95.8	981.8
2014	92.5	1.001.0
2015	80.2	1,003.0
2016	91.8	649.5
* Quantity in tonnes; Source: World Gold Council

"Anyway sales of old and new jewellery are down not because of GST, but due to overall weak sentiment as rural consumers, who contribute nearly two-third of jewellery sales remain absent from active trade. They are busy in their fields sowing kharif seeds. Lack of buying occasions such as wedding dates and festivals have also affected jewellery buying and selling in June and July. The clarification on GST levy is just an accounting change as sellers would get input credit on the purchase of new jewellery. It is not going to change the sale of used jewellery at all," said Nitin Khandelwal, Chairman, All India Gems and Jewellery Trade Federation (GJF).

Gold recovery through used jewellery sales is a major business in India that keeps over two dozen refineries across the country busy. Data compiled by the apex body for gold miners, World Gold Council (WGC), showed gold recovery at 81.8 tonnes for calendar 2016, which is a marginal increase of 2 per cent from 80.2 tonnes reported in the previous year. Gold recovery contributed nearly 13 per cent of India's overall bullion supply of 649.5 tonnes in calendar 2016. Recovery of gold from used jewellery, however, has declined steadily from the peak of 118 tonnes in calendar 2012.

However, sale of old ornaments without a corresponding purchase of replacements would attract three per cent GST without any option to set off input credit.

"Those who sell jewellery without purchasing new ornaments would have to cough up three per cent tax on the invoice value. They would also have to pay tax on the capital gains they make o the sales of such jewellery," said Surendra Mehta, National Secretary, India Bullion and Jewellers Association (IBJA).