[Opinion] GST applicability on sale of melted gold by second-hand jewellery dealers

Shubham Dalmia – [2023] 147 taxmann.com 97 (Article)

1. Rule 32(5) of the CGST Rules, 2017 provides for the valuation of taxable supply by a person dealing in buying and selling of second-hand goods.

The dictionary meaning of “Second hand goods” is

i. Second hand things are not new and have been owned by someone else (Collins)
ii. Having had a previous owner; not new (English Oxford)

Extract of Rule 32 (5) states that-

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner hereinafter.

(2) ……………

(3) ……………

(4) ……………

(5) 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, is shall be ignored.

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.”

As per the paragraph above, this rule provides for the method by which the taxable value of a second hand goods supply is arrived and is applicable only if the following conditions are satisfied:

(a) The Supply made by the supplier is a taxable supply,
(b) The Supplier deals in buying and selling of second hand goods,
(c) The Supplier has done minor processing on such goods,
(d) The Supplier has not claimed Input Tax Credit on the purchase of such goods.
(e) The Supplier has not changed the nature of the goods,

2. The supply should be a taxable supply, is fulfilled by the dealers as the supply of second hand goods is taxable under the GST Act and is covered under Chapter 71 under Tariff Item No. 13. As per Notification No. 01/2017- Central Tax (Rate) dated 28th June, 2017, the said item is taxable at 1.5% under the CGST Act and similarly taxable under the KGST Act, 2017 also at 1.5%.

3. The condition stipulated at point (b), (c), (d) & (e) i.e. the supplier should be dealing in buying and selling of second hand goods, minor processing should be done, no Input Tax credit should have been claimed on the purchase of such goods and there should not be any change in nature. The dealers should be only dealing in second hand goods and should not be claiming any GST Input credit on the purchases. On the Old Jewellery which are marketable, they should be only cleaning and polishing them. On the other hand, the jewellery/parts which are non-marketable, the dealer should only be doing minor processing and melting it into gold lump/irregular shapes and selling it as it, without doing any much process on it.

4. Gold and Its Nature
Gold is a chemical element with the symbol Au (from Latin: aurum) and atomic number 79, making it one of the higher atomic number elements that occur naturally. In a pure form, it is a bright, slightly reddish yellow, dense, soft, malleable, and ductile metal. A relatively rare element, gold is a precious metal that has been used for coinage, jewellery, and other arts throughout recorded history. Gold is a soft, dense, yellow metal that is highly valued for its color, luster, and relative rarity. Gold is a good conductor of electricity and does not corrode or tarnish. These properties make it useful in a wide range of applications, including jewellery, coinage, electronics, and medicine.

Gold bullion refers to bars of pure gold that are typically bought and sold by investors and central banks. They are usually 99.5% pure and come in various weights, such as 1 ounce, 10 ounces, or 1 kilogram. They are often bought as a way to invest in gold or as a hedge against inflation and currency fluctuations.

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