22.03.2023: Marginal Scheme to pay GST under Rule 32, not applicable on purchase and sale of second hand gold jewellery: Karnataka AAR

The Karnataka Authority of Advance Ruling (AAR) in the case of M/s. White Gold Bullion Private Limited Order dated 15.05.2023, has ruled that purchasing second-hand gold in the form of jewellery and parts of jewellery from unregistered individuals and selling it to registered or unregistered dealers after melting it in the form of lumps of gold cannot be subject to GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of the CGST Rules, 2017.

In the case, the applicant is engaged in the business of purchase and sale of used gold (Second hand goods).  They purchase the used old gold jewellery from the unregistered persons and sells the same to others after cleaning and polishing it. Further, it was submitted that they also melt the unsold Old used Jewellery / parts which remain unsold because of being outdated design / model or because of being excessively damaged beyond repair and they do not charge GST on the purchase of these old Jewelleries / parts as per Notification No. 10/2017- Central Tax (Rate) dated 28.06.2017 and pays the GST on outward supplies as per Rule 32(5) as stipulated in this Notification. The applicant does not take any input on these purchases.

The Applicant has sought to know whether the applicant purchasing second hand gold in the form of jewellery / parts of jewellery, from unregistered individuals and sells to registered / unregistered dealers, after melting the same, in the form of lumps / irregular shapes of gold has to pay GST as per Rule 32(5) of CGST Rules, 2017.

The AAR took reference of Rule 32(5) of the CGST Rules, 2017, and noted that One of the conditions to apply rule 32(5) for their outward supplies is that supply made by the supplier must be a taxable supply. The applicant is into supply of gold, which is a taxable supply and hence the first condition is satisfied. Further, for the second condition the AAR stated that “Gold jewellery are a distinct category of article having distinct characteristics and is not same as gold lumps. When the applicant melts the gold jewellery into gold lumps, the nature of goods changes in as much as the characteristics of the articles and the classification changes. Since the processing done by the applicant changes the nature of goods, they do not satisfy the second condition and hence not eligible to avail the benefits of Rule 32(5) of CGST Rules, 2017.

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