Trader of second-hand gold in form of lumps or irregular shapes cannot avail GST chargeability under margin scheme

The AAR, Karnataka, in the matter of M/s. White Gold Bullion Pvt. Ltd.[Advance Ruling no. KAR ADRG 20/2023 dated May 15, 2023] ruled that purchasing second hand gold in the form of jewellery / parts of jewellery, from unregistered individuals and selling to registered / unregistered dealers, after melting in the form of lumps / irregular shapes of gold will not get benefit of chargeability of GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules").

Facts

M/s. White Gold Bullion Pvt. Ltd. ("the Applicant") is engaged in the business of purchase and sale of used gold. The Applicant purchases old gold jewellery from the registered persons and sells the same after cleaning and polishing it.

Further, the Applicant melts the unsold old used jewellery/parts which remain unsold and further sells such lumps / irregular shapes of gold. The Applicant was not charging GST on purchase of old jewelleries / parts as per Notification No. 10/2017- Central Tax (Rate) dated June 28, 2017and discharges GST on outward supplies as per Rule 32(5) of the CGST Rules.

Issues

• Whether the Applicant can avail chargeability of GST on the margin difference between sale price and purchase price as stipulated in Rule 32(5) of the CGST Rules, if he purchases second hand gold in form of jewellery / part of jewellery from unregistered individuals and sells those to registered / unregistered dealers, after melting and forming lumps/ irregular shapes of such gold without changing its nature?
• HSN Code for Old Gold Jewellery purchased and after melting the purchased old gold jewellery is 7113 or not?

Held

The AAR, Karnataka, in [Advance Ruling No. KAR ADRG 20/2023] held as under:

Held that, gold jewellery is distinct category of article having distinct characteristics and is not same as gold lumps, as melting of gold jewellery into gold lumps changes the characteristics of the articles and thus resulting in change in classification of the article. Since the processing done by the Applicant changes the nature of goods, they are not eligible to avail the benefits of Rule 32(5) of the CGST Rules.

Further held that, the Applicant purchasing second hand gold in the form of jewellery / parts of jewellery, from unregistered individuals and selling to registered / unregistered dealers, after melting the same, in the form of lumps / irregular shapes of gold cannot pay GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of the CGST Rules and the HSN Code for Old Gold Jewellery is 7113 and after melting into gold lumps or irregular shapes of gold, the HSN Code is 7108.

Relevant Provisions

Rule 32 of the CGST Rules

"Determination of value in respect of certain supplies.

32. (1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter.

(2) .........

(3) .........

(4) .........

(5) Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used good as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored."