Applicability of GST in case of waste of gold in the jewelry manufacturing process: AAR Answers
He West Bengal Advance Ruling Authority (WBAAR) has ruled that there will be an Applicability of GST in case of wastage of gold in the jewelry manufacturing process.
The applicant alleges that, as an employee, he expects to receive an order for the manufacture of gold ornaments of a person registered in the state of West Bengal (the director). The business model, as illustrated by the applicant, is as follows:
(i) The principal will provide the applicant with 1,000 grams of pure gold for the manufacture of gold ornaments;
(ii) The applicant will be allowed a 40g waste allowance from the principal, ie the applicant has to return gold ornaments weighing 960g to the principal;
(iii) The applicant would thereafter sub-contract the order to another worker on the job with the agreed provision to allow 30g waste;
(iv) The applicant would therefore be able to earn 10g of pure gold in addition to the charges for manufacturing gold ornaments.
The applicant has made this application under subsection (1) of section 97 of the GST law and the rules formulated therein by asking the following questions see serial number 14 of the application in FORM GST ARA-01:
(1) If the recipient’s gain of 10 grams of pure gold would result in the provision of goods or services under section 7 of the CGST/WBGST Act, 2017?
(2) If the beneficiary is required to pay GST in respect of winning 10 grams of Pure Gold?
(3) In case the recipient is responsible for paying the GST, what will be the time and value of the Supply?
(4) In case the payee is responsible for paying GST, then whether it will be classified as goods and taxed at 3% according to HSN: 7108/7113 or whether it will be classified as service and taxed. tax @ 5% under SAC: 9988?
The Authority stated: “The central question that arises for our consideration is to determine the taxation of 10 grams of pure gold, retained by the applicant, in the course of manufacturing gold jewelry from 1000 g of pure gold provided to the applicant. for its main Applicant’s argument in this regard is that the provision to allow such waste is in the nature of normal loss that occurs during the course of manufacturing and it is industry-wide practice to allow such provision for normal waste or loss.”
The Authority found that, “In the present case, the applicant undertakes to provide work services for the manufacture of gold ornaments to his principal in exchange for a monetary consideration. At the same time, the principal has allowed the applicant to waste due to manufacturing loss that exceeds the limit of the waste rule that allows the applicant to retain a certain amount of pure gold. The gold jewelry manufacturing process involves melting, cutting, shaping, polishing, etc., which can result in some gold waste. However, retaining a certain amount of the input (10 g of pure gold in the present case) before putting it into the manufacturing process cannot be treated as ‘waste’ or ‘normal loss’. Therefore, we are of the opinion that price is not the only consideration for the supply here and the value of such excess waste allowed to the applicant will be considered as a non-monetary consideration for the purposes of determining the value of the supply of the job. labor services provided by the applicant to his principal. Therefore, the value of the supply of services, i.e. the realization of charges on which the applicant is obliged to pay tax at 5%, would be determined according to the provision of section 15 of the GST Act read with rule 27 of the CGST/WBGST Rules, 2017 Since the applicant admits that he retains 10 g of pure gold due to waste that exceeds the allowable limit of waste in nature of a normal loss, the value of the pure gold so retained by the applicant will form part of the supply value of employment work services.”
DECISION
(1) Question: Is the applicant required to pay GST in respect of winning 10 grams of pure gold?
Answer: In the present case, the value of 10 g of pure gold will form part of the value of labor services rendered by the applicant, and therefore the applicant is required to pay taxes on that value.
(2) Question: In case the applicant has to pay the GST, what will be the time and value of the Supply?
Answer: In the present case, the supply value will be determined according to rule 27 of the CGST/WBGST Rules, 2017 and the supply time will be determined according to subsection (2) of section 13 of the GST Act.
(3) Question: In case the applicant is required to pay GST, then whether it will be classified as goods and taxed at 3% according to HSN: 7108/7113 or whether it will be classified as service and taxed at 5% %. under SAC: 9988?
Answer: In the present case, the value of 10 g of gold will be part of the value of labor services and, consequently, would be subject to tax at 5%.
To view the official decision, please download the PDF below:
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