Nagpur, July 23, 2017

Even as Goods and Services Tax (GST) at 5% is levied as making charges of gold or silver ornaments, there are doubts on the rate to be charged on repairs.

It is still not clear whether repairs would be considered as job work that attracts 18% GST.

The question was raised at a seminar on the new tax organized by Nagpur Sarafa Association, Itwari, on Friday. The jewellers were addressed by chartered accountant Saket Bagadia. Officials of the erstwhile sales tax department which now implements GST did not have clear answer on this issue.

Bagadia, who is also chairman of Western India Chartered Accountant Students Association (WICASA) of Institute of Chartered Accountant of India (ICAI), said, "An ornament which is moulded and crafted out of raw gold or silver is considered as making of a jewellery. Joining a broken piece of an earring will not come under the definition of 'making'. If a consumer brings broken jewellery and wants to repair it by adding some gold or silver, it will be considered as buying new jewellery," added Bagadia. "The GST department will soon ensure clarity on the subject. We also need to study the possibility of including repairing jewellery in the definition of making," he added.

Under the new GST regime, gold is being taxed at 3% while making charge on jewellery is taxed at 5%. Two separate tax invoices are generated since most jewellers tend to outsource making of jewellery to small craftsman, said Julfesh Shah, chairman of ICAI's National Economic Advisory Committee.

Shah said, "The service of simply fixing a broken ornament may be considered as a job work which is taxable at 18%. But it is highly unlikely that the end consumer would be willing to pay such a high rate of tax. A lot of confusion will be created in establishing the definition of 'repairing' and distinguishing it from 'making' of jewellery'."

The issue of the reverse charge mechanism was raised in which the purchaser who buys goods worth over Rs 5,000 from an unregistered trader has to pay GST. Chairman of Nagpur branch of Western India Regional Council of ICAI Sandeep Jotwani said, "This could be a burden on small jewellers."

Currently, sale of gold jewellery is classified as composite supply i.e. sale of goods plus service rendered in making of the goods. Traders and manufacturers dealing in composite supply with a turnover in the range of Rs 20 lakh and Rs 75 lakh can benefit under the low-tax composite scheme where they are liable to pay 1% and 2% GST respectively on the total turnover.

Bagadia also explained the concept of mixed supply i.e. selling two types of goods in a package, to sarafa traders, "If you give a free umbrella to your customers when they buy jewellery you will need to record the sale of the umbrella and charge applicable GST on it."

[The Times of India]