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April 27, 2022

No Ruling by AAR due to lack of details of GST on used/second hand gold jewellery or ornaments

by CA Shivam Jaiswal in Income Tax

No Ruling by AAR due to lack of details of GST on used/second hand gold jewellery or ornaments

Fact of the case

 The fact of the case are the applicant are engaged in the business of buying and selling of used/second hand gold jewellery/ornament from the unregistered person, who are all general public and will be sold  to the end consumers. They are also having branches across Tamil Nadu. They have stated that the used/second hand gold ornaments are sold in the same form in which they are purchased to another registered or unregistered person, except for some minor processing in the form of cleaning and polishing but without altering the nature of such ornament/jewellery. They have stated that as they have purchased used/second hand gold jewellery/ornament from the unregistered persons there is no scope for availment of Input tax credit  of the CGST Act for them as such unregistered person will not charge GST. They have stated that presently they are charging GST at 3% on the entire consideration received from the customers on account of sale of such used/second hand gold jewellery/ornament. In view of the above facts, the applicant is seeking the authority to determine the value of supply as pe of COST act.

Observation of the court

The observation of the court has the applicant deals with the value of Supply of goods or services. But in case of used / secondhand goods, the value of supply will be determined as per the act, in the manner prescribed by the Government on the recommendation of the Council through a Notification. Thus, the CGST Rules prescribes the manner of determination of Value of such second-hand goods. As such, provides that where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

The applicant has further stated that it is settled jurisprudence that when the words of a statute is clear i.e. they are reasonable susceptible to only one meaning, the courts are bound to give effect to that meaning irrespective of consequences. Moreover, if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to explicate those words in their natural and ordinary sense.

Hence, the applicant has submitted that, since they are engaged in the business of buying and selling of used/second-hand ornaments / jewellery  they are very much eligible to avail the benefit of Margin Scheme for determination of value of supply .

Further they have submitted that is being interpreted to take a view that only to sale of goods, which are purchased on payment of GST and where credit of such tax is not availed. This interpretation will make  redundant in majority of transactions as such second hand or used goods are normally purchased from individuals not liable to tax as such goods are not sold by them in course or furtherance of business. If this interpretation is taken, most of the dealers in second hand goods will not be entitled to take valuation as prescribed under the act. Moreover, the second ­hand goods when it is purchased for the first time from primary market it would suffer the levy of indirect tax. It therefore means that when the tax is paid on margin on sale of second-hand goods, these goods have suffered full tax. The purpose of this phrase seems to prevent the dealer purchasing second hand goods or used goods from registered person on payment of GST and availing dual benefit of paying the tax on margin and claiming input tax credit simultaneously.

The applicant has stated that the GST is a value added tax and each person in the value addition chain is expected to pay tax on the value addition made by him in the transaction. The intention is to ensure that a dealer operating in unorganized sector (buying second hand or used goods from unregistered persons or non-business entities) is not burdened with tax liability disproportionate to value addition done by him in the supply chain. In majority of the cases, the margin of such second-hand goods dealer is less than the tax leviable on such goods under normal scheme of taxation and hence need for such provision. They have also stated that it is settled principle of interpretation that if a statutory provision is open to more than one interpretations, one has to choose that interpretation which represents the true intention of the legislature.

They have stated that such presumptive schemes are promulgated for trade facilitation or for convenience of tax administration. Once such valuation scheme is on the statue book, it is mandatory for Assessee as well as tax authorities to follow it in letter and spirit, irrespective of revenue considerations.

They have stated that the purchased jewellery will be subject to the process of cleaning which involves the process of manual cleaning with soap oil and polishing with brush puffing. Applicant has stated that in no case the process will change the old gold/Jewel/ornaments and the ornaments/jewels so purchased say as bangle will remain as bangle and ring will remain as ring and so on. Thus the applicant has submitted that the processing undertaken does not change the nature of goods, though not substantiated with documentary evidences.


The applicant has not furnished with the documentary proof that he satisfies the conditions provided under the rule  enabling him to adopt the differential value as prescribed in the said rule. Hence, No ruling is extended.


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