Intro.docx

CHAPTER NO: 1 INTRODUCTION GST came into picture in the year 2017 on 1st of July, through the course of the constitution of India by the Modi government. The tax returned existing multiple falling taxes levied by the central and state government. GST-Goods and Service Tax is an indirect tax levied in India on the sale of goods and services. GST have five tax slabs-0%, 5%, 12%, 18%, 28%. The tax rates of goods and services tax are governed by the GST council. GST eliminates the cascading effect of tax and also improves the efficiency of logistics. x. GST help in reducing number of indirect cost. For manufacturing industries it has multitudinal effect which leads to reduction in cost including inventory cost and transporting costs. One of the oldest precious metal to be known to humankind, gold for thousands of years has been valued as an investment option. Gold has a long and fascinating history of being used in different industries and applications. One of the last rates to be announced by the council was the rate of GST on Gold. Council decided to fix 3% GST on Gold. This also included 1% excise duty and an additional 1.5% as value added tax and tax on making charges 5%. Presently, gold attracts on import duty of 10% in addition to 3% GST, 5% making charges. The gold market is expected to become more transparent and organized because of GST. GST enables the cost gap to be reduced between organized firms selling gold and unorganized sector will get greater share in the market. Here customer may sell old items of jewellery and purchase new ones without any tax deductions. That by selling old jewellery, 3% GST is levied on the sale and when they purchase a new jewellery the tax which has already been paid will be deducted from GST on the purchase. the Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 7 per cent of the country’s GDP and 15 per cent to India’s total merchandise exports. It also employs over 4.64 million workers and is expected to employ 8.23 million by 2022. One of the fastest growing sectors, it is extremely export oriented and labour intensive. Based on its potential for growth and value addition, the Government of India has declared the Gems and Jewellery sector as a focus area for export promotion. The Government has recently undertaken various measures to promote investments and to upgrade technology and skills to promote ‘Brand India’ in the international market.

India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour. India is the world’s largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies. Moreover, India exports 75 per cent of the world’s polished diamonds, as per statistics from the Gems and Jewellery Export promotion Council (GJEPC). India's Gems and Jewellery sector has been contributing in a big way to the country's foreign exchange earnings (FEEs). The Government of India has viewed the sector as a thrust area for export promotion. The Indian government presently allows 100 per cent Foreign Direct Investment (FDI) in the sector through the automatic route.

GST Advantages and Disadvantages The GST is a Value added Tax (VAT) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. Though GST is consider a historical tax reform in India, it also has some demerits. We here would look into GST Taxation and deal with its advantages and disadvantages. GST Advantages 1. GST is a transparent tax and also reduce number of indirect taxes. 2. GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. 3. Benefit people as prices will come down which in turn will help companies as consumption will increase. 4. There is no doubt that in production and distribution of goods, services are increasingly used or consumed and vice versa. 5. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. 6. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services. 7. GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market. 8. GST will also help to build a transparent and corruption free tax administration. 9. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold. 10. GST is backed by the GSTN, which is a fully integrated tax platform to deal with all aspects of GST. GST Disadvantages 1. Some Economist say that GST in India would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent. 2. Some Experts says that CGST (Central GST), SGST (State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST. Hence, there is no major reduction in the number of tax layers.

3. Some retail products currently have only four percent tax on them. After GST, garments and clothes could become more expensive. 4. The aviation industry would be affected. Service taxes on airfares currently range from six to nine percent. With GST, this rate will surpass fifteen percent and effectively double the tax rate. 5. Adoption and migration to the new GST system would involve teething troubles and learning for the entire ecosystem. What GST means for the jewellery sector The GST (goods and services tax) rate on gold jewellery is fixed at 3%. While it is higher than the earlier tax on gold, the GST rate is lower than expectations of a 5% rate and that is a relief. GST implementation is expected to be positive for jewellery companies in the organized market such as Titan Co. Ltd. Analysts expect GST to improve higher tax compliance, which will result in a level-playing field for the organized market. This is expected to reduce the price differential versus unorganized firms, which in turn is likely to result in market share gains for companies such as Titan and support their earnings growth. The impact on the unorganized sector will be one factor to watch for from a medium-term perspective. According to an analyst, one parameter to evaluate that progress would be to track market share gains that organized companies make. Titan’s September quarter update said, “The market share gain in the jewellery business continued unabated despite some slowdown in the month of July as a consequence of the advancement of sales that we saw in the second half of June (in anticipation of GST)." What also needs to be seen is whether the shift from the unorganized market to the organized one has accelerated. Nonetheless, it will be a while before one can assess the exact change. Separately, in August, the government notified the applicability of the Prevention of MoneyLaundering Act to the jewellery industry. Under this, jewellers are obligated to collect KYC (know your customer) documents for all sales above Rs50,000 and also file certain returns. Analysts fear this will have an adverse impact on gold jewellery.

Positive impact of GST on Gold Industry Mumbai: Even as consumers will face a slightly higher tax rate in gold after the Goods and Services Tax (GST) is rolled out this July, the overall impact on the gold industry will be positive, the World Gold Council (WGC) said on Thursday. “On 1st July, India’s labyrinth of taxes will be replaced with a simple, nationwide GST. This is the biggest fiscal reform since India’s liberalisation in the early 1990s," WGC said in a report. “While gold consumers will face a slightly higher tax rate and the industry will go through a period of adjustment, we see the net impact on the gold industry as being positive," it added. WGC said the gold supply chain will become more transparent and efficient and the tax reform could boost economic growth, which is likely to support gold demand. The country’s gold market is becoming more organised and transparent, and it is likely that GST will accelerate this process, which will be good for consumers, it said. “They can have more faith in the gold products they are buying, and this in turn can support gold demand in the years to come," said the WGC. Industry has also reacted positively to the 3% GST rate, it said, adding there were fears that it could have been higher—perhaps 5% or more. “This would have had a damaging effect on consumer demand and, more importantly, would have meant many small, independent retailers would have done their best to avoid it. The 3% rate is reviewed as being more manageable and will ensure greater compliance by small and independent retailers," the report said.

Effects of GST on the Jewellery Business The much-awaited hype on the biggest tax reform in India finally rolled out on July 1, 2017. The Goods and Service Tax (GST) on gold fixed at a rate of 3%. It is higher than the former taxes that included 1.5% VAT and 1% excise duty. Though it is below the anticipated GST of 5%, the processing charges of 5% and customs duty around 10% would continue to apply. However, the gold industry has also welcomed the 3% GST tax. Let us assess the impact of GST on the gold demand in India and how this service tax has affected the organized and unorganized gold business. The Pre-and Post GST Scenario in Jewellery Industry Prior to GST, the jewelers used to pay a 10% customs duty on gold, 1% excise duty, and 1.2% VAT. This totaled up to 12.43% when buying gold jewelry and 11.32% when purchasing gold bars. The taxation was a bit less in the latter case, as gold bars purchase does not attract excise duty. With GST implemented at 3%, customs duty of 10% and 18% of making charges, the effective rate comes to 15.67%. Hence, the effective price increase on gold jewelry comes to 3.24%, which means that gold has become slightly expensive for the Indian consumers.

GST Effects on Gold Consumers GST is taking a heavy toll on the people fond of buying and making gold jewelry now have to face a lot of compliance, with an increased amount of paperwork. The GST on jewelry and gems sector is 3%, with an exception to rough diamonds, which are at 0.25%. This has an immediate effect on decreased resale value of gold. For instance, if Mr. X buys gold worth Rs. 100, he will have to pay a GST of Rs. 3 and the total cost of buying would be Rs. 103. Presuming that the gold price remains constant, after six months, if Mr. X wants to sell the gold, the GST amount would be lost at the customer level and he would get Rs. 100. Thus, with GST, the transaction impact has increased from 1% to 3% (approx). The government has advised not to invest in physical gold, rather endow the money in gold sovereign bonds. The consumer is likely to get ROI on gold bonds as there will be interest coupons attached with it, and also a tracking option for gold prices. The gold exchange trade of old jewelry for new ones has also been affected, due to a transaction cost of 3% Even making new gold jewelry from scrap supplied by customers is also witnessing some drastic tax impact. Prior to GST, there was no tax impact on the making of such jewelry, as making charges (considered as labor charge), exempted from service tax. However, no such exemption exists under GST, and under new tax scheme, it amounts to 18% GST. This is totally an undesired effect. Effect of GST on Export from Domestic Area

Other than SEZ, the domestic tariff area has been hit on two counts: Firstly, as there has been no exemption from GST for gold procured for export purposes, this would incur in a higher blockage of working capital. Secondly, export business has been adversely affected, as there is value added in the form of labor and design. Even for an overseas consumer, required paperwork needs to be undertaken to register as a non-resident business person. This would definitely deter many prospective consumers. This would alter most international suppliers, including the bullion banks, as they need to register themselves as the non-resident business to send goods on consignment to India. Impact on Gold Demand As before mentioned, the slight increase in the tax has cast an impact on the demand; however, it won’t be of much an issue over a time-period. It seems, jewelers have already done a good stock of gold before GST, as it is clearly evident from import data. So, it would be difficult to assess the full-fledged impact on the demand now. As per the GFMS data, the gold import in the first five months of the year 2017, have surged 144% year-on-year to 424.1 tons. This means that during the peak season of Q4, the import would be much lower. However, over the course of the year, we could see a revival in demand, as the consumers and the industry adjust to the new environment. Impact on Jewellery Trade It is clear that GST would prove beneficial for the organized sector and branded retailers would find it easier to comply with the new rules. Almost 30% of the jewelry sector is ‘unorganized’ and they might face difficulty in implementing and complying with the new rules. The organized and branded jewellers, who also have integrated manufacturing, can avert the 18% GST on the making. Moreover, a structural shift toward the organized trade is already in the make and post demonetisation, the clampdown on cash transactions has paced up the process. This would help the organized sector and not the unorganized ones, as the latter deal more with cash. So, overall, though there could some primary difficulty for the jewellery industry to comply with the new rules, the branded and organized retailers would be at an advantage. To sum up the scenario, we GST is a positive step towards a right direction and over a period both the consumers and the industry would benefit with increased transparency. Though due to lack of detail, there are still concerns in some areas, these would not affect much in the long run to the jewellery industry. As for decades, gold has served as a favored asset for the Indians, GST would not bring any drastic negative impact. 3% GST on gold, silver and processed diamonds The Goods and Services Tax (GST) on gold, which was lower than industry expectations of around 5 percent, will replace a number of federal and state levies.

"In the case of gold, keeping various factors in mind, because there was an extensive debate ... we finally reached a consensus of taxing gold at 3 percent," Finance Minister Arun Jaitley told reporters in New Delhi after a meeting of the GST Council. The council comprising central and state government representatives is preparing the landmark tax measure. Gold jewellery, silver and processed diamonds will also be taxed at 3 percent, while the tax on rough diamonds will be 0.25 percent, revenue secretary Hasmukh Adhia said. The gems and jewellery industry in the world's second-biggest gold consumer welcomed the tax rate, saying it will help the sector become more compliant and mature. "Currently, the industry pays taxes around 2 to 2.5 percent, so 3 percent is almost as good as no impact," Aditya pethe a director at WHP Jewellers said. "With this taxation, many unorganised players will be encouraged to enter organised trade." Anticipating a higher tax rate, Indian jewellers have been restocking inventory, a move that was expected to hit imports of the metal in the second half of the year when gold demand is higher due to festive season buying. Prime Minister Narendra Modi's government is pinning hopes on the GST to boost economic growth that slumped to 6.1 percent in the quarter to March. The India head of the World Gold Council said the government's decision on gold was an encouraging step and would help stabilise an industry in which millions are employed. But with customs duty of 10 percent, the total tax on gold is still high and will continue to have an impact on the jewellery industry, Somasundaram PR, Managing Director, India, World Gold Council, said in a statement. "This may be an opportune time for the government to cut the import duty and bring down the total tax on gold significantly so unauthorised imports are totally eliminated and the industry embraces transparency in letter and spirit under GST," he said. The tax on cotton will be 5 percent, ready-made garments 12 percent and hand-rolled Indian cigarettes or bidis 28 percent, Jaitley said. Apparel costing less than 1,000 rupees and footwear below 500 rupees will attract a tax of 5 percent. New Delhi has already decided to tax telecom and financial services at a uniform rate of 18 percent and transport services at 5 percent.

GST on Gems & Jewellery Industry The Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 6-7 per cent of the country’s GDP. The consumption of gold in India is around 20 percent of global consumption, one of the largest consumers. Moreover, India exports 95 per cent of the world’s diamonds. The Gems and Jewellery Sector, being one of the largest sector of Indian economy, the products of which attracts the people from around the world is now trying to attract the attention of policy makers and persons engaged in implementing Goods and Services Tax (GST) so as to keep tax rates under GST close to current regime and to have simplified procedures. At present, gold attracts import duty of 10%, around 1% value added tax (except in Kerala, where the VAT is 5%) and 1% excise duty. In Rajasthan the composition VAT rate of 0.75% on jewellery is without any limit, therefore benefit of composition scheme can be availed by all traders. In GST regime the benefit of 1% is also available under Composition Levy but at present there is a turnover limit of Rs. 75 Lakhs for availing this scheme. Considering high valuation of items in Jewellery Industry the limit of Rs. 75 Lakhs seems not practicable for jewellery sector. Therefore as an effect of this almost all of the jewelers have to register themselves under normal scheme, which itself brings a plethora of compliances with it. The concept of being a part of the credit chain and passing on credit (along with the compliances to be made in this regard) is being seen as an additional burden and thus creating apprehension in the industry. The taxman would surely not want a repeat of the last year strike (which was called by the jewellery industry on the excise issue), and hence currently representations from the industry were being welcomed by the department. Through the great efforts and constant representations of the various gems and jewellery associations in the country, the rates have been chalked down to 3% in case of jewellery items and 0.25% in case of rough of diamonds and other precious and semi-precious gem stones. Another issue that is a point of major discussion in the industry is regarding the credit of the existing stock (which as in turn brought under composition scheme). The transition provisions clearly law down the provisions when the inputs have been purchased from a dealer who would have paid tax under normal scheme, however since the entire industry is practically covered under the composition scheme, a clarity is awaited whether the said transition provisions are applicable on such transactions as well. Further another issue which Industry is facing is of making charges. A section of jewelers considers making charges as a service charge and shows this separately while billing. Another section of jewellers, however, adds making charges in value of the jewellery; they do not show it separately but add it to the price of gold. The practice of considering making charges separately results into higher outflow from the pocket of the customer. This issue some what seems to be resolved through valuation provisions under GST law. As per Section 15 of the Central Goods and Services Act, 2017 (CGST Act) the value of supply of goods

will be the transaction value. Further the value of supply will also include any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or before delivery of goods. The cumulative reading of the valuation provision can lead to the interpretation that making charges has to be included in the value of goods in the GST regime and to be taxed as a composite supply. The next point of consideration is for exporters. As one of the fastest growing sectors, the Gems and Jewellery sector is extremely export oriented. The provisions related to export in GST regime requires payment of tax on procurement of material used for exports and then claim refund, which will going to effect the working capital requirement of the exporters. As India is biggest exporter of diamond the provision related to export will going to have major impact on the working of diamond merchants. However the government has provided provision of Fast Track refund procedure where 90% provisional refund will be granted to exporter within a period of 7 days of receipt of acknowledgement of making application of refund. This Fast Track refund provision somewhat reduce the effect of problem, but still will have impact on the working capital requirement. Another point of consideration for Gems and Jewellery Industry is that of supply to tourists. As Indian jewellery is world famous there is huge sale to tourists throughout the country. The provisions of GST law provides that supply to a tourist will be treated as inter-state supply in all cases and not intra state supply and therefore IGST will be levied. This provision though provide benefit to tourists as they will be granted refund of the IGST paid, but on the other hand has increased compliance burden on the jeweller as one has to now check that whether the person purchasing jewellery is a tourist or not as per the provisions of laws as to charge the correct tax. Moreover, the GST law also prescribes provision of E-way bill, which provides that the movement of goods, value of which exceed Rs. 50,000/- should be accompanied with an Eway bill. This procedural requirement is also troubling the Industry as the value of jewellery generally exceeds Rs. 50,000/- and the nature of Industry is such where there is movement of goods on daily basis in search of proposed buyers. This requirement of E-way bill now require daily generation of E-way bills and will therefore result in increased compliance on daily basis. Though this provision has been currently deferred till December, 2017 but if it is applied in the way and shape, the draft rules were floated, it is going to create a widespread chaos and a plethora of documentation to move goods through brokers and on approval. Since brokers and approval supply chain is the essence of the industry, this e-way bill is a simple “NO” for the industry. The GST council has proposed multiple HSN codes for the gems and jewellery industry, consisting of 13 major codes with over 50 sub codes. This will also impact the Jewellery Industry as for an unorganized industry, it will be extremely difficult for over 80 per cent of the players to adhere to this compliance procedure. It will be a difficult task to maintain stock at the 4 digit level of HSN and potentially result in legal complications with the tax authorities. Another aspect that needs to be considered that the entire industry be it gem stone cutting & polishing or manufacture of final jewellery is heavily dependent on the skilled workmen (Karigars). The said workmen generally work from their home

along with their family and till date, in most cases have been out of the indirect tax net. Under the GST regime, such transactions shall have to be properly planned or structured (whether as supply from unregistered dealers or as job workers, etc) as the same would lead to increased compliances and blockage of working capital. If at all there artisans obtain registrations, then complying with such automated procedures would be a tremendous challenge for them and as a result may lead to denial of credit in the hands of the Jeweller. The rate of tax on such job work is @ 5%.

The impact of lab-grown diamonds on the jewellery market

Most topics about the impact of technology on various industries revolve around the internet, healthcare, computing, and smart devices. However, over the last few years, technology has continued to make an impact in several markets, including some that one would never have thought of. At least, not in the manner the disruption has occurred. The diamonds market is a prime example. While technology has certainly improved traditional diamond mining systems, the focus is rapidly beginning to narrow down to labgrown diamonds. A lot of companies are now creating diamonds in the labs. Over the last few years, this concept has grown from just a case of trying to see whether it would commercially work in the modern market to a full-blown industry as environmentally friendly diamonds continue to gain popularity among young buyers. Making a lab-grown diamond

The “eco-friendly” lab-created diamonds are grown by replicating the same conditions used to form them in the earth: carbon, pressure, and heat. Currently, there are two processes that companies use to make them. One process involves melting graphite through intense heat and applying pressure to form liquid carbon, which is then cooled to form a diamond. The second process is a little more complex. Hydrocarbon is injected into vacuum plasma reactors after which the carbon atoms are separated using high-power microwaves before they are compressed into diamonds. Despite the complexity and the power involved in creating these lab-grown diamonds, they are a lot cheaper than traditionally mined diamonds. And because of this and the fact they appeal to many people from an ethical perspective, they have continued to gain popularity in recent years to the point of putting pressure on diamond prices. So, what does the future hold for lab-grown diamonds? Lab-grown diamonds are more like traditional diamonds and less like diamond simulants (white sapphire, strontium titanate, and crystal, among others) that are plenty in the market today. However, there still are a few critics who think that their quality is miles below that of an underground mined diamond. These lab-made gems cost 30-40 percent cheaper than traditionally mined diamonds but some retailers have not yet bought into the idea of selling them to their customers. According to a report published by Morgan Stanley in 2016, “lab-grown diamonds make up just one percent of the global market of rough diamonds.” However, Amish Shah, the president of ALTR Created Diamonds, a company that produces synthetic diamonds, expects this niche category of the diamonds market to grow from the current market value of about $150 million (as of 2018) to about $1 billion by the year 2020. Much of this growth is expected to be driven by the growing interest from jewellery buyers especially the young generation. Another factor that is expected to drive growth is the rapid advancement in technology, which now allows lab-grown diamond manufacturers to create bigger diamonds. Historically, companies have been creating diamonds in labs since the 1950s. However, over the years, they only managed to create small colored gem-quality diamonds. But now, with better technologies available, they are creating bigger lab-quality gems, which are tipped to cause a major disruption in the diamonds market. In summary, lab-grown diamonds appear to be finding a market among the young generation of customers who are more socially conscious. These gems have a low environmental impact and also do not have any links to wars and bloodshed. Therefore, as more people become socially responsible, lab-grown diamonds could establish a better foothold in the $14 billion global rough diamonds market. Clearly, there are more interesting times ahead and improvements in technologies used to create these gems will only make the task easier and less expensive.

Types of GST Types of Taxes The various types of taxes that are under GST are – If the supply of the goods and the services are made within the state, then the two types of taxes which are applicable are, the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST). If the supply is made across the state, then Integrated Goods and Services Tax (IGST) is applicable. Cess Cess will be chargeable on the Value of Supply for 5 years on the taxes on certain specified goods and services. But in the case of import of goods into India, cess would be levied but then collected on customs duties under the Customs Tariff Act, 1975. The only exception is that no cess would be levied by a taxpayer who opts for the composition scheme. Import & Export In the case of exports, the exports would be treated as zero-rated supply. So, no tax is payable on the exports but Input Tax Credit/ Refund benefits would be allowed. And In the case of imports, the imports would be treated as inter-state supplies. Hence, IGST would be applicable in addition to the customs duties. In case you are confused about GST as a business owner, feel free to consult the GST experts at Legal raasta You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST Software Benefits of GST Eliminating the cascading effects of taxes Tax rates would be comparatively lower Reduce tax evasion and increase the revenue and GDP by widening the tax base There would be seamless flow of the input tax credit Price of the goods and the services would fall There would efficient supply chain management It would promote the shift from unorganized sector to organized sector. It would eliminate 17 indirect taxes and therefore the compliance cost would falle for doing end-to-end GST compliance.