The excise duty has been made applicable on following Jewellery articles manufactured and cleared w.e.f. 1st March 2016. The Jewellers are on strikes since announcement of the levy leading to considerable loss to the economy. This article covers applicability of Central excise duties on Jewellery manufacturing units and the issues which needs to be considered by them as well as the Government. The Government is firm on the levy however they have agreed to form a High Level committee to address the concern of the Jewellery manufacturing industry for simplification in compliances. The issues highlighted in the article if addressed then it can certainly bring the ease in compliances.
The excise duty has been made applicable on following Jewellery articles manufactured and cleared w.e.f. 1st March 2016:
- Gold Jewellery studded with pearls, diamonds, other precious / semi-precious stones falling under ITCHS 7113 19
- Gold Jewellery unstudded falling under ITCHS 7113 1910
- Platinum Jewellery unstudded falling under ITCHS 7113 1950
- Silver Jewellery those studded with diamond, ruby, emerald or sapphire falling under ITCHS 7113 11.
- Jewellery of other base metals falling under ITCHS 7113 2000
- Parts of above falling under ITCHS 7113 1960.
For sake of brevity, below are the legal provisions about the applicability of the levy and issues thereof.
- Rate of Duty
The Jewellery manufacturer has following options to pay the central excise duties,
Option 1 : Central Excise duty @ 12.5% (Tariff Rate).
Option 2 : Central Excise duty @ 1% subject to condition number 16 mentioned in the Notification 12/2012-CE as amended.
1.1. Issues to be addressed / looked into w.r.t. rate of duty
- Sr No 199 of the exemption notification 12/2012-CE as amended time to time provides exemption for central excise duties in excess of 1% subject to condition number 16 mentioned in the notification.
- The condition 16 of the notification 12/2012-CE states as under.
If the said excisable goods are manufactured from inputs or capital goods on which appropriate duty of excise leviable under the First Schedule to the Excise Tariff Act or additional duty of customs under section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs or capital goods has been taken by the manufacturer of such goods (and not the buyer of such goods) under rule 3 or rule 13 of the CENVAT Credit Rules, 2004.”;
- The condition clearly states that the manufacturer is not entitle to take the credit of Inputs and Capital goods.
- In other words, the Jewellery manufacturers can avail the credit of service tax paid on the input services even while paying 1% Central Excise duty.
2. SSI Exemption
- Higher Turnover limit has been specified for claiming SSI exemption. Units having turnover not more than 12 Cr in the previous financial year will be entitled for claiming duty exemption upto 6 Cr. Necessary amendment are done in the Notification 8/2003-CE as amended.
2.1. Issues to be addressed / looked into w.r.t. SSI exemption
- Limit for Intimation: The SSI Units having turnover less than 6 Cr are not required to take registration under the Central Excise. However intimation will be required to be given after crossing turnover of Rs 90 Lacs in the prescribed format as per the Notification 36/2001-CE (NT) as amended. This limit of 90 Lacs needs to be necessarily increased from the point of Jewellery manufacturers.
- House mark not be treated as Brand Name: SSI exemption is not entitled in case goods manufactured under the brand name. Typically all the Jewellers embosses “house mark” for the purpose of identification of the jewellery.
Necessary clarification needs to be inserted in the SSI notification (8/2003-CE) to clearly mentioning that “an identity put by Jeweller or the job worker, commonly known as “house mark” shall not be considered as brand name”. This will avoid confusion from the mind of Jewellers as well as Field formation while determining the eligibility of SSI exemption.
This care has been taken for inserting explanation 3 to Rule 12AA of Central Excise Rules 2002 and notifying the effective rate of duty on articles of goldsmiths or silversmiths wares of precious metals bearing a brand name falling under chapter heading 7114 and gold coins bearing the brand name. The same explanation needs to be inserted in the notification no. 8/2003 CE.
- Gross Turnover: The gross turnover of 12 Cr will also include sale of exempted goods like Silvery Jewellery (un-studded), unbranded Silver-ware and Gold wares etc. This need to be considered while claiming exemption under SSI notification 8/2003-CE.
3. Valuation of goods
- As per Section 4 of the Central Excise Act, 1944, the transaction value at the time and place of removal of goods is the value for the purpose of the Central Excise Duty.
3.1 Issues to be addressed / looked into w.r.t. Valuation of goods
- Fluctuation in prices: Gold / silver prices are fluctuating every day. This leads to considerable impact of the valuation of goods particularly in cases where the goods are sold after the place of removal i.e. sold from retail store after removal from manufacturing location. Further jewellery prices are decided based on market fluctuating rate of gold and silver and thereafter making charges are added and hence this will have prime importance.
- Valuation in case of removal of Jewellery to retail stores: The jewellers will have one manufacturing location and multiple retail locations / sales joint. In such cases, the goods will be removed from the manufacturing location and will be cleared to various retail locations / sales joint. As the Excise duty is payable at the time of clearance of goods from factory, the jewellery needs to be valued at the time of clearances. Since, the transaction value is not available at the time of clearance of goods, Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 i.e.
Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as “such other place”) from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment.
It will be just impossible to ascertain and thereafter reconcile with books of accounts. In view of the same, simple provision w.r.t. gold metal prices to be considered for determination of assessable value and different provisions needs to be inserted for such sectors.
- Sale on approval basis: The jewellers manufacturer clears also sales the goods on approval basis. In these circumstances the jewellery is cleared to customer for their approval and after approval from the customer the sales is concluded. In such cases also the Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 may be applicable so as to determine the value of goods sold will be operations. Further there will be difference in value which the excise duties are discharged and transaction value.
- Sale to related parties: In case the Jewellers sales to “related party” then as per the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the value at which the related party sales the jewellery will be transaction value. It is extremely difficult to establish the price at which the jewellery is sold by the related party at the time of removal from the manufacturing location. In such cases the only option available with the manufacturer is follow the procedure of provisional assessment of goods. This will be cumbersome process.
- Schemes (Discount / modification / remaking): Gold / Silvery are most liquid commodities after money. The buyer sells its old gold and buys new jewellery. In such cases, the valuation needs to be carefully done. Further, necessary records also needs to be maintained w.r.t. basic sales price of new Jewellery (on which is excise duty is payable) and purchase price of old gold /silver and net recoverable amount. Also many time the manufacturer runs scheme for discount on making charges those needs to be factored in while valuation of Jewellery for the purpose of Central Excise duty. Necessary clarification should be issued by the CBEC.
In order to remove these complexities, the CBEC should consider the valuation on the basis of Cost of production + margin. The cost of production can be standardised by applying the Cost Accounting Standard – 4 (CAS-4). Alternatively central excise duty has to be collected on actual transaction value on monthly basis rather than determination of value on each clearances. Monthly turnover of the company is to be considered for payment of excise duty and the same should be considered for the purpose of all other taxes including VAT, CST and turnover reported in the financial statement and income tax return. This will simplify all the issues.
4. Manufacturing through job work
- The Jewellers gets jewellery manufactured from small articians / job-worker. In case goods manufactured from Job worker, the Jeweller are required to follow the procedure mentioned in Rule 12 AA of the Central Excise Rules, 2002.
4.1 Issues to be addressed / looked into w.r.t. manufacturing through job worker
- In Rule 12AA of the Central Excise Rules, 2002, the Jeweller is required to send invoice to the job worker giving all the particular except for date and time of removal of goods. In other words, there will be required to give the details of the value of the jewellery on the invoice. As mentioned above, the transaction value of the Jewellery cannot be determined at the time of removal of the goods. This will lead to complication in complying the rules.
5. Cenvat Credit
- As mentioned earlier, the Jewellery manufacturer will be entitled for the Cenvat Credit of the Input Services as per Cenvat Credit Rules, 2004.
5.1 Issues to be addressed / looked into w.r.t. Cenvat Credit
- Reporting of Cenvat Credit in return: Though the Cenvat Credit has been allowed on Input services but the return notified i.e. ER-8 do not provide for reporting of Cenvat Credit. This lead to confusion on eligibility of the Cenvat Credit on Input services
- Condition for 1% Central Excise Duty: Jewellery manufactures also manufactures branded Gold wares / Silvers wares which are liable for 1% Central Excise duty subject to non-availment of Cenvat Credit on Inputs and Input Services as mentioned in condition 25 of the Notification 12/2012-CE. The conditions for 1% excise duty are different for Articles of Jewellery and branded Gold wares and Silver Wares leading to un-necessary complications.
It can be noted from the above that there is considerable issues which are creating the jitters in to the minds of the Jewellery manufacturers. If government addresses above mentioned issues with open mind then it can bring lot of relief to the Jewellers.