Proposal for GST under reverse mechanism draws mixed response from jewellery sector

MUMBAI: A proposal by a group of ministers for GST amendment on the gem and jewellery sector elicited a mixed response from the trade.

To plug loopholes in collection of GST or potential misuse, the GoM recommenced a 3% GST on purchase of old jewellery under the reverse charge mechanism. Also, an E-way bill has been mooted for intrastate movement of gold .

While Kumar Jain, owner of UT Zaveri in Mumbai, said GST on purchase of old jewellery would curb tax evasion, Surendra Mehta, national secretary of trade body IBJA , said it would make passing off of smuggled gold as old gold more difficult, if the GST Council approved the proposals. Smuggled gold escapes the 12.5% import duty.


However, Amit Modak, CEO, PN Gadgil & Sons explained that the proposal if implemented would result in advancement of tax. Currently, if a URD sells old jewellery, the jeweller melts the same, makes new jewellery and sells it subsequently. On the sale, he pays the 3% GST , which means the government might get the tax after a month or two. If the tax is on purchase under reverse charge, it will be payable immediately. When he sells the new gold, he gets an offset on GST.

“This was the rule in Karnataka under the reverse VAT regime,” said Modak.

A retail customer, being an unregistered dealer (URD) , is not liable to pay GST on sale of old jewellery to a jeweller.

Also, change in income tax rules will entail reporting of cash purchase of jewellery above Rs 1 lakh from Rs 2 lakh currently.