According to a ruling by the Karnataka Authority for Advance Ruling (AAR), jewelers will be required to pay GST solely on the profit generated from the resale of second-hand gold jewelry. The clarification was sought by Bengaluru-based Aadhya Gold Private Ltd through an application to the AAR. The company sought clarity on whether GST should be levied only on the difference between the selling and purchase price when acquiring used/second-hand gold jewelry from individuals, with no alteration in the form or nature of the goods during the sale.
The Karnataka AAR bench determined that GST is applicable only on the margin between the sale price and the purchase price. This decision was based on the fact that the applicant did not transform the jewelry into bullion and then re-create it into new jewelry. Instead, the company engaged in cleaning and polishing the old jewelry without altering its form.
Industry experts anticipate that this ruling will lead to a reduction in the GST payable on the resale of second-hand jewelry. Presently, the industry typically imposes a GST of three percent on the gross sale value received from the purchaser.
Rajat Mohan, Senior Partner at AMRG & Associates, highlighted that most jewelers acquire old jewelry from individuals or unregistered dealers, eliminating the necessity for tax credits in the hands of jewelers. He emphasized that the Karnataka AAR’s decision to apply GST solely on the difference between the purchase and selling prices will significantly impact the industry, reducing the tax cost for the final consumer.
