Excise Duty on Jewellery

Amrit DalmiaIn this year’s Budget, a nominal excise duty of 1% [without CENVAT Credit on Capital Goods and Inputs] and 12.5% [with CENVAT Credit on Capital Goods and Inputs] has been imposed on articles of jewellery [excluding silver jewellery, other than studded with diamonds or other precious stones] w.e.f March 01, 2016. Even for this nominal 1% excise duty, manufacturers are allowed to take credit of Input Services, which can be utilised for payment of excise duty on jewellery.

For Example: If a jeweller purchases inputs of INR 1,00,000/- and excise duty has been paid at the rate of 12.5% which is INR 12,500/- and jewellery has been manufactured and valued at INR 1,20,000/- on the date of clearance from place of manufacture and excise duty has been charged at 12.5% which is INR 15,000/-, then he needs to pay the duty of INR 2,500/- (15,000-12,500) to the credit of the Central Government or he can pay INR 1,200/- [at the rate of one per cent] without availing CENVAT Credit and further he is not required to keep any document for credit. However, if the said input is not purchased from excise dealer or manufacturer, then he has no other option except paying duty at 12.5% i.e. INR 15,000/-.

SSI Exemption: There is higher threshold exemption for SSI [Small Scale Industries] up to INR 6 Crores in a year [as against normal SSI exemption limit of INR 1.5 Crores] and eligibility limit of INR 12 Crores [as against normal SSI exemption limit of INR 4 Crores]. Thus, a jewellery manufacturer can claim exemption from excise duty on first clearances up to INR 6 Crores, if his aggregate domestic clearances during preceding year were less than INR 12 Crores. Further, CENVAT Credit on Inputs and Capital Goods should not be availed up to INR 6 Crores. To determine eligibility for the SSI exemption for the Financial Year 2016-17, a certificate from a Chartered Accountant, based on books of accounts for FY 2015-16 would suffice.

However, the duty on manufacture of jewellery would apply not only to new articles but also to those that are made by exchanging or melting old jewellery. When customer gives old gold and wants to make jewellery out of it then the jewellery manufacturer should be treated as job-worker and SSI exemption will be available to customer and not the job-worker.

Registration: Rule 12AA of the Central Excise Rules, 2002 provides that in case of goods falling under chapter heading 7113, every person [not being an EOU or SEZ unit] who [the principal manufacture] gets jewellery made on job-work basis are required to get registration under the Central Excise and not the job-worker. This ensures that small artisans or goldsmiths who only manufacture jewellery on job-work basis are not required to register with the Central Excise, pay duty and file returns, as all these obligations will be on the principal manufacturers.

A notification issued under Rule 9(2) of the Central Excise Rules, 2002 provides for an optional centralized central excise registration for jewellery manufacturers with centralized billing or accounting system so that jewellery manufacturers do not have to take separate registration for all the units. Registration will be granted within two working days of submission of the online [https://www.aces.gov.in/] registration application without any post registration physical verification of the premises. The time limit for taking Central Excise Registration of an establishment by a jeweller has been extended up to July 01, 2016 vide Circular No. 1026/14/2016-CX dated April 23, 2016. However, the jewellers may pay excise duty for the months of March, April, May along with duty for the month of June 2016.

Valuation: Valuation is one of the most crucial aspects for a jewellery manufacturer considering the high value transactions and frequent fluctuation in prices. This ensures that the valuation method used for duty purpose is properly documented with supporting evidences to ensure that the valuation is not questioned by departmental authorities at the time of enquiries, audits or investigation proceedings.

In this regard, Circular No. 1021/9/2016-CX dated March 21, 2016 inter alia clarifies that payment of excise duty shall be based on first sale invoice value. However, the meaning of the term ‘first sale invoice value’ is still not clear. Neither any suitable amendment has yet been, in this regard. Applying the valuation methods as per the statutory provisions, ‘Transaction Value’ under Section 4 of the Central Excise Act, 1944 seems to be the most appropriate in case of jewellery.

However, there could be other possibilities, where special provisions of valuation may need to be applied depending on the purpose for which it has been removed.

Records: Jewellers’ private records or records for State VAT or records for Bureau of Indian Standards [in case of hallmarked jewellery] will be accepted for all Central Excise purposes. Also there is no requirement to file a stock declaration to the Jurisdictional Central Excise Authorities.

Return and Payment: Quarterly ER-8 Return must be filed by jewellers paying duty at the rate of 1% and monthly ER-1 Return by jewellers paying duty at the rate of 12.5%. Further, excise duty is to be paid on monthly basis and not on each clearance.

Protests: With the levy of Excise Duty on articles of jewellery, there have been widespread protests and strikes across the country. The Government refused to recall the duty as it was more of a measure to check black money than to mobilize revenue. However, it assured that there would be a lot of procedural relaxations, all the concerns of the industry in compliance aspects would be addressed and high powered committee would also be set up. Since, the thrust of these new levies is based on self-assessment; no physical visits shall be made to registered units in the normal course. Neither any arrest or criminal prosecution of any jeweller will be done nor will any search or seizure of stocks by any Central Excise Official be carried out till the recommendations of the Sub-Committee are finalized. However, the ultimate effect will be on end-user paying more money as cost of jewellery will include excise duty along with profit margin.

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