The Karnataka Authority of Advance Ruling (AAR) 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.
The bench of M.P. Ravi Prasad and Kiran Reddy T has held that the HSN code for old gold jewellery is 7113, and after melting into gold lumps or irregular shapes of gold, the HSN code is 7108
The applicant is in the business of purchasing and selling used gold (second-hand goods). They purchase used old gold jewellery from the unregistered persons and sell it to others after cleaning and polishing it. The applicant melts the unsold old used jewellery or parts that remain unsold because of outdated design or model or because they are excessively damaged beyond repair. They do not charge GST on the purchase of this old jewellery or parts as per Notification No. 10/2017- Central Tax (Rate) dated June 28, 2017, and pay the GST on outward supplies as per Rule 32(5) as stipulated in the Notification. The applicant does not have any input on these purchases.
The applicant sought an advance ruling on the issue of whether the applicant purchasing second- hand gold in the form of jewellery or parts of jewellery has to pay GST on the margin difference between the sale price and purchase price as stipulated in Rule 32(5) of the CGST Rules, 2017.
The AAR held that when the applicant melts the gold jewellery into gold lumps, the nature of the goods changes as much as the characteristics of the articles and the classification. Since the processing done by the applicant changes the nature of the goods, they do not satisfy the condition and hence are not eligible to avail of the benefits of Rule 32(5) of the CGST Rules, 2017.
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