Jewellers rush to bring unaccounted gold on to books

Over 300 tonnes of jewellery made legitimate in last four months as GST deadline nears

The impending goods and services tax (GST) is forcing jewellers to replace unaccounted inventory with stocks they can show on their books.

Once GST is implemented on July 1, jewellers will have to declare stocks and all subsequent sales will be at the new tax rates.

Jewellers are selling old jewellery for cash or managing bills to bring their inventory on their books. Market estimates suggest 300 tonnes of gold jewellery have been moved on to jewellers’ books in the last four months. This is 40 per cent of India’s annual gold imports.

Tax evasion was a competitive advantage for unorganised jewellers selling to buyers who would pay with unaccounted cash. Now these jewellers are buying bills. However, not all jewellers have adequate bank deposits to buy bogus bills.

“Regularising the undeclared stock will pose a challenge to jewellers. It will be a difficult choice between the high finance cost plus tax burden on the one hand and risking the status quo on the other,” said Shailesh Sheth, advocate and indirect tax practitioner.

“The GST will bring about a fundamental transformation in the way the industry operates. Those unable to read the signs and adapt may face a crisis of survival,” he added.

The government has brought in several rules that have affected the jewellery industry. In 2013, it imposed restrictions on imports and raised the import duty to 10 per cent. Last year, the sector was brought into the excise net.

Besides, jewellery sales of over Rs 2 lakh require the customer to quote his permanent account number (PAN). And in November, the scrapping of currency notes made cash transactions difficult.

Since November, around 450 tonnes of gold is estimated to have been imported, much higher than imports in the previous quarters. The imported gold was largely used to replace old stocks.

Another issue worrying jewellers is they will have to show the tax as a separate element in bills under the GST.  “We fear the cash-driven businesses will be under heavy scrutiny after the GST,” a jeweller said. The GST will expose the whole chain in ornament making and will leave an audit trail.

“Jewellers will have to disclose their stocks to the GST authorities. Till date, whatever cash sales were happening were shown as below Rs 2 lakh. Higher amounts were split into smaller bills to avoid quoting PAN,” said an expert.

“Once the GST is implemented, jewellery stocks not shown on the books of jewellers will face the same fate as the banned currency notes,” he added.