The old jewellery given by a Customer does not constitute supply under GST law. As per section 7 of the CGST Act, one of the essential elements of supply is furtherance of business of the person making the supply. In the instant case, sale of personal jewellery by a customer does not constitute furtherance of business by the customer.
The Revenue department said "even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se."
The statement said that Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism. But since the sale is not in consideration for the furtherance of business no tax will apply. Thus no RCM is payable.
It however said the tax would apply if an unregistered business sells gold ornaments to registered supplier. A supplier is defined as the one who buys or sells in furtherance of his business.
Illustration:
- Customer gives old jewellery and in return buys a Gold ornament worth Rs. 1,00,000 - The old jewellery given by the Customer does not constitute supply under GST law. The jeweler will not be liable to pay tax by way of reverse charge. For the new ornament bought, the Jeweller will charge GST @ 3% on Rs. 1,00,000. It is important to note that this supply is a composite supply as defined under section 2(30) comprising of supply of Gold ornament along with supply of ornament making services. Gold ornament being the principal supply, the entire value of taxable supply shall be charged @ 3% as per section 8 of the CGST Act.
In cases where, the consideration for both Gold and making charges have been disclosed separately in the invoice by the Jeweller, the supplies will be taxable at their respective applicable rates, i.e. Gold @ 3% and making charges @ 18%.
- Customer sells old jewellery to the Jeweller and does not buy anything in exchange-The subject transaction does not constitute supply for the reasons discussed above. Accordingly, there will be no tax implications in this case.
Note - It is important to note that it is desirable for the Jewellers to obtain suitable KYC documents, declaration from the customers in order to substantiate the fact that the sale of old jewellery by the customers is not in the course of business.