The West Bengal Authority of Advance Ruling (WBAAR) has ruled that there will be an Applicability of GST in case of wastage of gold in Jewellery Making process.
The applicant submits that as a job worker he expects to receive an order for manufacture of gold ornaments from a registered person in the state of West Bengal (the principal). The business model, as illustrated by the applicant, is as follows:
(i) The applicant will be provided 1000 grams of pure gold by the principal for manufacturing of gold ornament;
(ii) The applicant will be allowed a provision for wastage of 40 gms by the principal i.e., the applicant has to return gold ornaments weighing 960 gms to the principal;
(iii) The applicant, thereafter, would sub-contract the order to another job-worker on agreed provision of allowing wastage of 30 gms;
(iv) The applicant, thus, would stand to gain 10 gms of pure gold in addition to the making charges for manufacturing of gold ornaments
The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:
(1) Whether the gain of the assessee of 10 grams of pure gold would result in supply of goods or services under section 7 of the CGST/WBGST Act, 2017?
(2) Whether the assessee is liable to pay GST in respect of gain of 10 grams of Pure Gold?
(3) In case the assessee is liable to pay GST then what shall be the time and value of Supply?
(4) In case the assessee is liable to pay GST then whether it shall be classified as goods and chargeable to tax @ 3% under HSN: 7108/7113 or whether it shall be classified as service and chargeable to tax @ 5% under SAC: 9988?
The Authority Stated, “The core issue which arises for our consideration is to determine taxability of 10 grams of pure gold, retained by the applicant, in the course of manufacture of gold jewellery from 1000 gm of pure gold provided to the applicant by his principal. The contention of the applicant in this regard is that the provision for allowing such wastage is in the nature of normal loss that occurs during the course of manufacturing and it is an industry-wide practice to allow such provision for wastage or normal loss”
The Authority found out that, “In the instant case, the applicant agrees to provide job work services for manufacturing of gold ornaments to his principal against consideration which is in money. At the same time, the applicant has been allowed wastage by his principal on account of manufacturing loss which exceeds the wastage norm limit that enables the applicant to retain certain amount of pure gold. The process of making gold jewellery involves melting, cutting, moulding, polishing etc. which may result in some amount waste of gold. However, retaining a certain amount from the input (10 gm of pure gold for the instant case) before it put into the manufacturing process cannot be treated as „wastage‟ or „normal loss‟. We are, therefore, of the view that here the price is not the sole consideration for the supply and the value of such excess wastage allowed to the applicant shall be considered as non-monetary consideration for the purpose of determination of value of supply of job work services provided by the applicant to his principal. Therefore, the value of supply of services, i.e., making charges on which the applicant is liable to pay tax @ 5% would be determined as per provision of section 15 of the GST Act read with rule 27 of the CGST/ WBGST Rules, 2017. Since the applicant admittedly retains 10 gm of pure gold on account of wastage which is beyond the permissible limit of wastage in the nature of normal loss, the value of pure gold so retained by the applicant shall form a part of value of supply of job work services.”
RULING
- Question: Whether the applicant is liable to pay GST in respect of gain of 10 grams of pure gold?
- Answer: In the present case, the value of 10 gm of pure gold shall form a part of value of supply of job work services provided by the applicant and therefore the applicant is liable to pay tax on such value.
- (2) Question: In case the applicant is liable to pay GST then what shall be the time and value of Supply?
- Answer: In the instant case, value of the supply shall be determined under rule 27 of the CGST/WBGST Rules, 2017 and time of supply would be determined under subsection (2) of section 13 of the GST Act.
- (3) Question: In case the applicant is liable to pay GST then whether it shall be classified as goods and chargeable to tax @ 3% under HSN: 7108/7113 or whether it shall be classified as service and chargeable to tax @ 5% under SAC: 9988?
- Answer: In the instant case, the value of 10 gm of gold shall be a part of value of job work services and accordingly would be taxable @ 5%.
Courtesy: Studycafe
