Uttarakhand to lose status of gold refining hub

Some 26 bullion or dore gold refineries were set up and they were getting a 0.75% tax benefit in the earlier tax regime

Rudrapur city, in northern Uttarakhand, will lose its status of being a gold-refining hub because it stands to be deprived of its earlier benefits under the new indirect tax regime.

With the goods and services tax (GST) in place, all state levies like the sales tax and excise got subsumed in the GST.

However, to keep the promise of area-specific tax exemptions, the central government has issued a notification saying it will refund its share of taxes where area-specific exemptions were given earlier. However, this refund will be on value addition after taking into account input credit. And in the case of bullion refining, the benefit is negligible and several units have become unviable.

There are around 26 bullion refineries in Rudrapur, and last year, of the 300 tonnes of dore (unrefined gold) refined, two-thirds was refined by these units, according to industrial estimates.

Industrial units set up in several northern and North-East states like Jammu and Kashmir, Uttarakhand, Himachal Pradesh, and Sikkim were exempt from state-level sales tax or the value-added tax, and the central excise duty. 

These benefits were offered to attract industries. However, in Uttarakhand, some 26 bullion or dore gold refineries were set up and they were getting a 0.75 per cent tax benefit in the earlier tax regime. These units import dore at New Delhi airport and move it to Uttarakhand and send refined gold to consuming centres. They are still able to pay premiums to gold mines in western Africa and South America, from where they procure dore.

The commerce ministry issued a notification dated October 5, saying the central government would refund units in such excise-free zones on value addition. Based on a revenue-sharing formula between the Centre and states, the Centre will refund 58 per cent of its share of the central GST, which is half the GST. 

However, in the case of gold refining, value addition is negligible in percentage terms and the refund amount may not be even Rs 500 per tonne. 

“Now it is time for the state government to notify the refund of their part of taxes in line with the central government’s announcement. Otherwise, Uttarakhand and other such area-based refineries will become unviable and they have to shift the units elsewhere or close down the business,” said Rajesh Mehta, executive chairman of Rajesh Exports, which has a 150-tonne capacity bullion refinery in Uttarakhand. 

Rajesh Exports was planning to merge this refinery with Valcambi. 

The merger would have helped Rajesh Exports refinery to attempt to get LBMA (London Bullion Market Association) accreditation. 

Now “we will review our plan if the state doesn’t come up with a refund notification”.

Another refiner, however, said that “these benefits were offered by the government, and based on that we set up units. Withdrawing benefits midway will be illegal and can be challenged in the court”.