AUGUST 25 , 2020

By K Srinivasan

CENTRAL Excise duty on Jewellery though introduced initially for branded Jewellery and later extended to all Jewellery was subsequently withdrawn.

However as part of Budget 2016 tax proposals, changes were made w.e.f. 1st March 2016, by withdrawing exemptions given earlier thereby extending the tax base of Central Excise to Jewellery sector as well w.e.f. 01.03.2016.

The scheme of levy and collection of Central Excise duty on articles of Jewellery is as under:

(a) The levy and collection of Central Excise Duty is on the manufacture of Jewellery (excluding silver Jewellery, not studded with diamonds, ruby, emerald or sapphire).

(b) It is applicable to both branded as well as unbranded Jewellery.

(c) The rate of duty on the Jewellery are as follows:

(i) 1% on transaction value [without Cenvat credit on inputs and capital goods. However credit on input services is eligible] or

(ii) 12.5% with Cenvat credit of inputs, input services and capital goods.

What is the taxability of stock as on 29.02.2016?

i. All jewellery manufactured and removed, on or before February 29, 2016, from the premises of the job workers or any other premises where such articles of jewellery were manufactured, and

(a) Lying at different premises (including branches) of the principal manufacturer, or

(b) Sent on approval to potential customers, will not be liable to excise duty. Furthermore, no stock declaration is required to be filed by a jeweller for this purpose with the jurisdictional central excise authorities.

ii. For the stock lying, as on February 29, 2016, with the job worker or any other premises where articles of jewellery were manufactured [including finished articles of jewellery as well as work in progress], the manufacturer or principal manufacturer, as the case may be, shall self-assess excise duty liability on such articles of jewellery or articles of jewellery manufactured out of such work in progress, received  on and after 1st  March, 2016,  at the point of first sale of such articles of jewellery as per the Articles of Jewellery (Collection of Duty) Rules, 2016

(Circular no 1045 /33/2016- CX dated 26/07/2016)

Whether any declaration has to be made as to stock as on 29.02.2016?

No. There is no requirement of declaration of any stock to as on 29.02.2016 to be made to department. However it is suggested to have a certification from Chartered Accountant / cost accountant as to stocks lying at different places since duty liability differs depending upon where the stocks were situated as on 29.02.2016.

Further as per Rule 7 of the Articles of jewellery collection of duty Rules 2016, the assesse is required to maintain the daily stock account of receipt and sale of manufactured articles, on a daily basis. Thus, closing stock of such articles lying as on 29.02.2016 would automatically become the opening stock for the next day.

As per the department, the subject articles of gold jewellery lying in stock as on 29.02.2016 at the Registered Office which is also the Head Office sometimes, is considered purportedly the principle place of manufacture, so that as per the provisions of Central Excise Rules When read with Board's circular mentioned supra, the manufacturer can be said to be responsible to self-assesse the excise duty liability on such articles of jewellery as though they were received on or after 01.03.2016 at the point of first sale of such articles of jewellery, as covered under Para(ii) of the Circular concerning stocks lying outside the premises of manufacturer.

As per the department the Head office is presumed to be also the principle place of manufacture of all articles of gold jewellery which transferred it in turn to the branches for sale to customers.

Since it is the department's assumption that the head office could also be the principal place of manufacture and that there is no point of sale to the customers directly from the Head Office, it is not to be considered as equivalent to a branch from where gold jewellery is customarily sold to customers.

Hence, the wrong conclusion of the department that central excise duty is liable to be paid on all the said stock of gold jewellery available as on 29.02.2016 at the premises of the Head office as if it is lying at the manufacturer's premises to fictionally create a tax liability in the hands of the Head office, on the said articles of gold jewellery, albeit their receipt into the finished stocks already by 29.02.2016.

To understand clearly the taxability aspect of closing stock as on 29.02.2016, a more cohesive study of various aspects of the taxation scheme such as point of taxation, determination of duty, definition of manufacturer/principal manufacturer, valuation/first sale value, will be helpful to arrive at balanced view on the topic of discussion.

Who is manufacturer in the case of jewellery?

Any person engaged in manufacture of article of precious jewellery or part thereof in his factory completely or after getting the goods manufactured through job worker makes further processing like electro plating, or affixing marks, polishing etc. before the articles of jewellery are sent to the show room for sale are called manufacturer.

Who is a principal manufacturer?

Principal manufacturer is a person who gets the articles of precious jewellery manufactured through job workers by supply of precious metal on payment of labour charges and the articles of jewellery so produced is directly sold by him in his show room without undergoing any further processing for the first time.  The principal manufacturer does not possess any factory.

[Rule 2 of the Articles of Jewellery (Collection of Duty) Rules, 2016 refers]

What is the place of removal for the purpose of levy of Central Excise Duty on articles of jewellery?

For the purposes of this notification, the registered premises or the centrally registered premises or branches of such centrally registered premises, of the manufacturer or principal manufacturer, as the case may be, of articles of jewellery or parts of articles of jewellery or both, from where the goods are sold for the first time shall be the place of removal for such articles of jewellery or parts of articles of jewellery or both, and the time of removal shall be construed accordingly.

(Notification no 33/2016 CE (NT) dated 26/7/2016 refers)

When the liability for payment of excise duty arises?

Excise duty arises on removal of the articles of jewellery or parts of such articles of jewellery or both from the registered premises of the manufacturer or the principal manufacturer as the case may be on first sale to a customer of such article of jewellery or parts of such articles of jewellery or both.  The manufacturer or the principal manufacturer shall assess the excise duty and calculate the liability.

When excise duty has to be paid?

The duty on the article sold for the first time by the manufacturer or the principal manufacturer as the case may be from his registered premises or centrally registered premises or branches of such centrally registered premises during a month shall be paid by 6th  of the following month if the duty is paid electronically or 5th  of the following month in any other case.  In the case of articles sold for the first time by the manufacturer or principal manufacturer as the case may be, during the month of March, the duty shall be paid by 31st March

(Rule 6 of the Articles of Jewellery (Collection of Duty) Rules, 2016.)

What is the valuation on which the duty has to be paid?

(i) In respect of articles of jewellery or parts or articles of jewellery or both other than those manufactured from the precious metal provided by the customer, the assessable value for the purpose of excise duty would be the value at which such excisable goods are sold for the first time from the registered premises or branches of such registered premises First sale value by the manufacturer or the principal manufacturer as the case may be.

(ii) In respect of Articles of jewellery or parts of articles of jewellery or both which are manufactured from the precious metal provided by the retail customer the assessable value would be:

(a) Cost of additional material used by the manufacturer or principal manufacturer as he case may be, for making such articles of jewellery

(b) Labour charges charged by the manufacturer or principal manufacturer as the case may be from the retail customer and

(c) Value of precious metal provided by the retail customer.

(Notification no 33/2016 CE (NT) dated 26/07/2016 refers)

What is the meaning of "first sale value"?

In respect of articles of jewellery or parts of articles of jewellery or both other than those which are manufactured from the precious metal provided by the retail customer, value at which such excisable good are sold for the first time from the registered premises or from centrally registered premises or branches of such centrally registered premises by the principal manufacturer or manufacturer as the case may be is called the first sale vale.

(Notification no 33/2016 CE (NT) dated 26/07/2016 refers)

Stock Lying on 29-02-2016 [Gist of Para 3.2.4 of TRU Letter-I dated 29.02.2016]

Excisable goods which were produced on or before 29.02.2016 but lying in stock without being removed from their place of manufacture as on 29.02.2016 shall attract excise duty upon their clearance by the manufacturer or the Principal manufacturer, as the case may be.

If the goods were already cleared from the place of manufacture or job work and are lying in stock in any other place like Head office, showroom, warehouse, stocking place, etc., are not liable to duty as such goods were already cleared from the place of manufacture or job work.

This is for the reason that point of collection of duty is the point of clearance of goods from the place of manufacture. Since this event would have been already completed in these cases, there cannot be duty liability on such goods lying in stock on 29.02.2016, as clarified by the Board in Para (i) of its circular.

It is suggested to have a certification from Chartered Accountant as to stocks lying at different places since duty liability differs, depending upon where the stocks were situated as on 29.02.2016.

In contradistinction of Para (i) of the Circular clarifies that in respect of articles of gold jewellery lying in stock as on 29.02.2016, with the job worker or any other premises where articles of jewellery were manufactured, including finished articles of jewellery [as well as work in progress], which could not have been removed till 29.02.2016, ought to be taxed as it can be cleared from such places of manufacture/ job work to show rooms, branches, warehouse, stocking point of the manufacturer or Principal manufacturer as the case may be, only on or after 01.03.2016.

This is clarified very well in Para (ii) of the above referred Circular.

Only in the stated position above, could the manufacturer or principal manufacturer, as the case may be, shall ever become liable to self-assess excise duty liability on such articles of jewellery or articles of jewellery manufactured out of such work in progress, received on and after 01.03.2016, at the point of first sale of such articles of jewellery, as per the Articles of Jewellery (Collection of Duty) Rules, 2016.

It will not be certainly applicable to stocks already lying as on 29.02.2016, resultant upon their prior removal, duly covered under Para (i) of the Circular, which is way too behind 01.03.2016 for such stocks to be received still on or after 01.03.2016 to assume the point of first sale to attract any tax liability, as wrongly understood by some in the department.

It is seen that such a misunderstanding stems from mixing up of Para (i) and (ii) of the Circular with the sole intention of somehow finding a way to rope in the lying in stocks held by the principal manufacturer as on 29.02.2016, to bear upon the same a tax liability which is not at all contemplated in the said Circular, is the considered view of the Author.

Perhaps the CBIC can advise the field formations in this regard, particularly in the Southern region!

[The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.]