APRIL 26, 2016

By Bharat Bhushan, Advocate

EXCISE duty of 1% (without CENVAT credit) or 12.5% (with CENVAT credit) is levied on articles of jewellery.

Manufacture

Theduties of Excise are levied on activity of manufacture. If the jeweller is not doing any manufacturing activity then he is not liable to any duty. Manufacture means something new must emerge. In India, people generally do not sell old jewellery. They get it repaired, re-polished, and also re-made. As far as repair and re-polish of old jewellery is concerned, no new commodity emerges. Therefore, Central Excise Duty cannot be demanded. However, in case of re-making of old jewellery, the revenue authorities may contend that the process of re-making of jewellery, since involves melting of old jewellery, hence amounts to manufacture. There are judgments on both sides. In one case, re-making of Lead Acid Batteries, by dismantling, re-malting of old and used batteries was held to be amounting to manufacture and on the other side, re-making of compressors by employing the process of opening the outer shell of the compressor, dismantling of inner components piece by piece, discarding of non-usable parts and replacing the same with new parts has been held to be as not amounting to manufacture. Thus, the issue is complex one and will be finally settled by higher judicial forums at appropriate time. However, the author views that the process of re-making of jewellery by melting the old jewellery amounts to manufacture and hence is liable to duty. From the rescinded Notification No. 09/2012-C.E. (N.T.) dated 17.03.2012, the view of the government appears to be that re-making of jewellery from old jewellery amounts to manufacture. In that notification, Tariff Value of the Gold Jewellery was fixed at 30% of the Transaction value, but the jewellery made out of the old jewellery supplied by customer was kept out of the scope of that notification.

Under the Central Excise Law, the Government is empowered to declare any process as ‘amounting to manufacture'. By exercise of the said powers ‘the process of affixing brand name or trade name on articles of jewellery' has been declared as amounting to manufacture. The said provision is giving sleepless nights to the jewellers. In this trade, the articles of jewellery are generally delivered in fancy boxes on which the name and monogram of the Jeweller remains printed. In this trade, all the articles of jewellery are not manufactured by jewellers themselves. They also procure jewellery from other jewellers on which they will have to pay appropriate Central Excise duty, at the time of purchase. The said jewellery, at the time of sale, is also packed in said fancy boxes. The jewellery repaired / polished is also returned in said boxes. The apprehension is that placing the said jewellery will be considered as a process amounting to manufacture and they will be required to pay Central Excise Duty on the same. The said apprehension is ill-founded. Board vide its instruction No. 354/38/2011-TRU dated 02.03.2012 had clarified as under:

"It is clarified that the excise duty leviable on precious metal jewellery manufactured or sold under a brand name is attracted only on such jewellery on which the trade name / brand name or an such mark or symbol or even a number which is cross referred with such trade / brand name (not being a house mark used by jewellers for identification of jewellery at the time of exchange / re-sale) is indelibly marked or embossed. If such brand name is not affixed or embossed on the jewellery or article itself but appears on the packing such as the jewellery box or pouch or even on the warranty card or certificate of quality, such goods will not be treated as branded jewellery and thus will not be liable to Excise Duty."

The aforesaid clarification was issued in 2012, when Central Excise Duty was imposed on branded jewellery. However, the said clarification is very much applicable today to answer the question in hand.

Valuation

The valuation of the jewellery, for the purpose of charging Central Excise Duty will be done on the basis of Transaction Value. The value will be taken before charging VAT and VAT will be charged on the Transaction Value plus Central Excise Duty. It is clarified that in case of remaking of jewellery and jewellery made by using the metal and/or stones provided by the Customer, the value for the material provided by the customer will also be included in the value for the purpose of Charging Central Excise Duty.

Rate of Duty

As already stated, the rate of Excise duty is 1% (without CENVAT facility) and 12.5% with CENVAT facility. The concessional duty @ 1% is subject to the condition that the said jewellery is manufactured from inputs and capital goods on which appropriate duty of Excise or Additional Duty of Custom is paid and CENVAT Credit of the same is not taken. The author has come across opinions of some experts who are apprehensive about the interpretation of the said condition. The experts have opined that the jewellers have no mechanism to know the duty paid character of the goods purchased on proper invoice, and hence would lead to a host of litigations. The said condition was substituted, across the board, for the condition, that the CENVAT facility is not availed, on 17.07.2015. The said amendment was carried out to neutralize the effect of Hon'ble Supreme Court judgment in the case of SRF - 2015-TIOL-74-SC-CUS. The Hon'ble Supreme Court had held that the imported goods also satisfies the condition of non-availment of CENVAT Credit and hence eligible for concession, while computing CVD. To disentitle the imported goods from this benefit, these amendments were carried out. CBEC also clarified the position vide Circular No. 1005/2015-CX dated 21st July, 2015 and stated that the said amendments have no effect on domestic manufacturers. Therefore, the said apprehensions are also unfounded and the said conditions be considered as duly met by not availing the facility of CENVAT Credit of duties paid on inputs and Capital Goods. Here it is pertinent to mention that for availing the Concessional rate of duty @ 1%, the condition is that credit of duty paid on inputs and capital goods is not availed, but there is no restriction of availing and utilising the credit of Service Tax paid on input services.

SSI Exemption

The benefit of SSI exemption to the jewellery is available for first clearance of Rupees Six crores in a financial year subject to the condition that their clearance value does not exceed more than Rupees Twelve Crore in the preceding financial year. If the jeweller has more than one premises, then the said exemption will be computed on the basis of total clearance of all the said premises. For computing the value of clearance of first six crore rupees and twelve crore rupees, the value of trading sale and value of repair etc. will not be considered.