Introduction:
With the decision of Government to charge excise duty on jewellery, now consumers have to pay more in purchasing these items. On the other side, huge protests are undertaken by the Jewellers on the premise that the smooth flow of their business would be disturbed by Central Excise department officials’ frequent visits and roving enquiries. Let us analyse the impact ofexcise duty and the consequential compliance requirements
Meaning and scope of “Articles of jewellery”:
As per the meaning given under Central Excise Tariff Act, 1985, the articles of jewellery means the following;
- Any small object of personal adornments.
Examples: rings, bracelets, necklaces, brooches, ear-rings, watch-chains, fobs, pendants, tie-pins, cuff-links, dress-studs, religious or other medals and insignia.
- Articles of personal use of a kind normally carried in the pocket, in the handbag or on the person. Examples: cigar or cigarette cases, snuff boxes, cachou or pill boxes, powder boxes, chain purses or prayer beads
- These articles may be combined or set (that is with natural or cultured pearls, precious or semi-precious stones).
- However, these articles do not cover articles in which precious metal is present as minor constituents, for example, monograms, ferrules
Excise duty is applicable on articles of jewellery which is covered under tariff item 7113 of Central Excise Tariff Act,1985. Levy is applicable on articles of gold, platinum whether or not studded with diamonds and other precious metal stones. Silvery jewellery studded with diamonds and other precious stones are also covered within the ambit of the levy. However plain silver jewellery which arenot studded with diamonds or any other precious stones are exempt from excise duty. Thus excise duty is applicable on all types of jewellery except plain silver jewellery i.e. not studded with diamonds or any other precious stones.
Salient features of the levy:
Excise duty is on the act of manufacture of excisable goods. The duty is payable by manufacturer at the rate specified on the value of these goods. Though duty is applicable on manufacture of excisable goods, the same shall be payable at the time of removal of the goods from factory.
In case of jewellery sector, any person who manufacturers jewellery on his own would be considered as manufacturer and accordingly liable to pay excise duty. Sometimes, the retailer may get their jewellery manufactured through artisans/gold smiths by supplying them the raw gold. This is called manufacture on job work basis.
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Central Excise Rules, 2002 contains a specific rule relating to Jewellery sector i.e. Rule 12AA. In terms of this rule, in case where the jewellery is manufactured on job work basis, the principal manufacturer (retailer) shall be responsible to obtain registration under central excise, maintain accounts, pay excise duty and comply with other requirements of the Central Excise law. The job workers, who are mostly unorganised and in large scaleare completely relieved from all types of compliance under central excise;
The duty levy is made effective from 01.03.2016 onwards where excise duty is payable on manufacture of jewellery by opting for any one of the following options;
ØPayduty@ 1% of the value without availing CENVAT credit on inputs and capital goods or ØPayduty@12.5% of the value by availing CENVAT credit on inputs and capital goods
The CENVAT credit of service tax paid on input services can be claimed under both the options;
Small Scale Industry Exemption:
Small scale manufactures are entitled to claim relief from excise duty, provided their turnovers are within the specified limit. The criteria laid down for jewellery manufacturers are as follows;
- In previous Financial year,the aggregate value of clearance of jewellery (excluding plain silver jewellery) for home consumptiondoes not exceed 12 crores, and;
- In current financial year, exemption is given for first clearance of articles of jewellery for home consumptionup to a value of Rs. 6 crores.
The exemption is also subject to certain other conditions viz. no Cenvat credit shall be availed on inputs and a certificate from a Chartered Accountant certifying the turnover shall be obtained. This is an optional exemption. A manufacturer may choose to pay excise duty on all clearances by availing CENVAT credit.
Valuation:
The excise duty can be paid at 1% or 12.5% at the option of manufacturer. The duty is payable at the time of removal of such goods from the workshop. So, the value shall be determined at the time of clearing goods from workshop in accordance with the provisions of Central Excise Act, 1944. The method of valuation would depend upon the nature of removal of jewellery from workshop.
Jewellery directly sent from workshop to Customer’s location: In certain cases the jewellery may be manufactured upon customer’s order. In such cases, the transaction value i.e. the price at which such goods are sold to the said customer shall be considered as the value of excisable goods.
Showroom and workshop are at the same location: Certain jewellers may operate their business by having showroom and workshop at the same location. In such cases, the removal of jewellery from the manufacturer’s location (factory or workshop) is said to have taken place only when the jewellery is removed from showroom upon sale to customers. In these circumstances, the transaction value can be considered as value of jewellery and accordingly excise duty is required to be paid.
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Jewellery manufactured at workshop is removed to showroom for sale: Whenever excisable goods are removed from workshop (factory) to a showroom (depot), the value of any excisable goods removed from workshop (factory) shall be based on ‘Normal Transaction Value’ of such goods as prevailing at a showroom (depot).
Normal transaction value is price at which greatest quantity of similar goods are sold at the depot/showroom at the time nearest to the time of removal of excisable goods from Factory. Let us understand this concept with a practical example.
Example: On 10th March 2016, five gold chains of a particular design are removed from workshop to showroom. On 9th March, 2016, the said gold chains are sold to three customers in the following manner.
|
Customer |
Quantity |
Price per gold chain (Rs.) |
|
|
|
|
|
|
|
A |
1 |
50,000 |
|
|
|
|
|
|
|
B |
2 |
47,000 |
(Total 94,000) |
|
|
|
|
|
|
C |
3 |
45,000 |
(Total 1,35,000) |
|
|
|
|
|
On 12th of April 2016, all the five gold chains are sold to customers at a price of Rs. 52,000 each.
As discussed above, ‘Normal Transaction Value’ is the price at which greatest quantity is sold at the showroom at the time when goods are removed from workshop. In the above example, gold chains are removed from workshop on 10th March 2016. At the time nearest to this point i.e. 9th March, 2016, gold chains of that particular design are sold to three customers. The highest quantity sold is three in case of customer ‘C’. The price at which those chains are sold to customer ‘C’ is the ‘Normal Transaction Value’ i.e. Rs 45,000 per chain.
As five chains are removed from workshop to Showroom, the value of these goods shall be valued at Rs 2,25,000 (45,000*5). Excise duty payable is to be calculated at 1% or 12.5% of this value. As stated in the above example, on 15th April, 2016 these gold chains are sold to customers at a higher price of Rs. 52,000 each. This action will not increase the amount of excise duty payable on those gold chains.
On the other hand, it has been stated by CBEC vide Circular No. 1021/9/2016-CX dated 21.03.2016 that Principal Manufacturer can value the excisable goods on the basis of first sale invoice value. Under the existing Central Excise Law, there is no concept of valuing excisable goods on the basis of First sale invoice. Also, there is no explanation given as to what is first sale invoice value, whether it is the price adopted for first invoice raised during a day or otherwise. What would be the position if there is no such sale happening at the showroom on the day the Jewellery is removed from workshop?
In the humble opinion of paper writer, Circular of CBEC can only clarify the legal position existing and it cannot lay down a law on its own in contrary to the existing law laid down by Parliament/Central Government. In view of this reason, the legality of the said circular is questionable.
Jewellery manufactured by job worker and sent to retailer: As discussed above, in terms of Rule 12AA of Central Excise Rules, 2002, the retailer (principle manufacturer) is the person responsible to pay excise
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duty with respect to jewellery manufactured by job worker. In view of this rule, the goods can be brought to the showroom of the retailer from job worker’s workshop without paying any excise duty. Excise duty is required to be paid on these goods at the time of removal from showroom. Accordingly, transaction value shall be considered as value of the jewellery.
Registration:
Manufacturers of jewellery having the requirement to pay excise duty are required to get themselves registered with Central Excise department. The registration shall be taken online in Form-A1 in the ACES website www.aces.gov.in under Central excise. Normally, a manufacturer is required to obtain registration for each of his manufacturing units separately. The jewellery manufacturer has given the benefit of obtaining registration for a single premise though manufacturing is undertaken at multiple locations. This is called centralised registration. This benefit is available only upon maintaining records relating to all the other units at the place for which centralised registration is sought for.
Invoice System:
Excisable goods should be cleared from factory only under the cover of an invoice signed by owner of the factory or authorised signatory. This should be issued in triplicate. Original copy is for Customer/Consignee, duplicate copy shall be issued to the transporter or anyone who is moving the jewellery from workshop to any other intended location and triplicate will be retained by manufacture for records.The standard invoice should include the following details;
- Excise Registration number
- Name and address of the consignee
- Description and classification of goods (7113)
- Quantity and value of goods, rate and amount of excise duty
- Time and date of removal from workshop or job-workers place.
- Mode of transport including vehicle No.
Record Maintenance:
Normally, a manufacturer of excisable goods has to maintain the following minimum records for the purpose of Central excise;
?DailyStock Account (for brevity, DSA) – Rule 12 of the Central Excise Rule,2002 directs manufacturer to maintain the DSA where the manufacturer should keep the record of description/particulars of goods manufactured, opening and closing balance, quantity removed, assessable value, duty charged on that value and amount of duty actually paid etc.Hence, DSA keeps the records of stock (finished and work-in-progress) on daily basis.
?RawMaterial Input Register – This is a register required to be maintained at the workshop for all excisable goods purchased and used in manufacture of finished goods. It records the type of raw materials used for making of jewellery, opening and closing balance, inputs purchased, inputs used, the amount of duty paid on the same etc.
?CENVATCredit Register –This register is required to be maintained in order to claim CENVAT Credit of inputs, capital goods and input services. This record is required to be maintained separately unit wise and goods wise. This register records the duty/tax paid on inputs, capital goods and input services for
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making of both exempted (plain silver jewellery) and taxable goods (silver studded with gems/diamonds etc.). It also indicates the balance of credit availed, utilised and the liability of output tax etc.
?JobWork Register: This a register which keeps records of the kind of goods manufactured on job-work basis, inputs sent to job-workers, credit availed, jewellery manufactured at job-worker’s premise, goods cleared directly to customer’s place etc.
However, if the jewellery manufacturer is maintaining records under VAT and/or Bureau of Indian Standards or any other private records giving details about the daily usage of stocks, raw materials, job work and the CENVAT credit balance is sufficient under Central Excise.
Payments:
Rule 8 of Central Excise Rules,2002 requires the manufacturer to make payment of excise duty by 6th of the month following the month in which clearances are made irrespective of whether the actual duty being collected from the buyer or not.
However, manufacturer whose turnover in the previous financial year is less than 12 crores, shall be entitled to make payment by 6th of the month following the quarter in which clearances are made. For the month of March/ quarter ending March, the payment has to be made by 31st March.
Returns:
The manufacturers of jewellery are obligated to file periodical returns by 10th of the following month in the applicable forms as discussed hereunder
ØFormER-8– This is applicable to manufacturers who have chosen the option of paying excise duty
- 1% without credit has to file returns in Form ER-8 monthly, by 10th of the immediately following month.
ØFormER-1 – This is applicable to a manufacturer paying excise duty on monthly basis at 12.5% by availing CENVAT credit on inputs. Such manufacturers are required to file their monthly return in Form ER-1 by 10th of the immediately following month.
ØFormER-3 – This is applicable to manufacturers who are entitled to claim SSI concessions and accordingly making quarterly payments. It is not required to avail the SSI concessions. They are given the facility of filing returns once in every quarter in Form ER-3 by 10th of the immediately following quarter.
Conclusion:
Before parting, jewellery sector is one of its kind sector involving huge number of retailers, job workers operating in an unorganised way. Considering this, a high level committee has been constituted to make suitable recommendations for implementation of excise levy on this sector. Report of the committee is awaited. However, this initiative has not relieved the jewellers from paying excise duty during the interim period. Further, the committee has invited recommendations/suggestions from trade. Thus a small effort has been made to disseminate the various aspects of excise levy and compliance requirements on jewellery sector.
