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2023 (2) TMI 873 - AAR - GSTSupply or not - taxability of 10 grams of pure gold, retained by the applicant, in the course of manufacture of gold jewellery from 1000 gm of pure gold provided to the applicant by his principal - contention of the applicant in this regard is that the provision for allowing such wastage is in the nature of normal loss that occurs during the course of manufacturing and it is an industry-wide practice to allow such provision for wastage or normal loss. HELD THAT - Government of India, Ministry of Commerce and Industry, Department of Commerce, Director General of Foreign Trade, in the HANDBOOK OF PROCEDURES 1st April, 2015 31st March, 2020 has prescribed the Wastage Norms for the Gems and Jewellery Sector. It would be pertinent to mention that in course of personal hearing, the authorised representative of the applicant has been asked to provide a certificate from the competent authority in respect of quantum/percentage of wastage allowed in manufacturing of gold ornaments - the percentage of wastage that may be allowed for gold ornament manufacturing process has been specified by Government of India, Ministry of Commerce and Industry. The wastage norms, though meant for items of export, may also be accepted as a general guideline for domestic market. In the instant case, the applicant submits that the principal allows him a wastage of 4% (40 gm wastage is agreed to be allowed against 1000 gm of pure gold) and the applicant, out of such wastage allowed to the extent of 4%, retains 1% of pure gold i.e., 10 gm of pure gold. In other words, the applicant delivers to his job worker 990 gm of pure gold thereby allowing 3% of wastage to his job worker. Whether any wastage claimed which is in excess of the specified limit can be treated as consideration for the purpose of value of taxable supply under sub-section (1) of section 15 of the GST Act? - HELD THAT - Sub-section (1) of section 15 of the GST Act speaks that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply . In the instant case, the applicant agrees to provide job work services for manufacturing of gold ornaments to his principal against consideration which is in money. At the same time, the applicant has been allowed wastage by his principal on account of manufacturing loss which exceeds the wastage norm limit that enables the applicant to retain certain amount of pure gold. The process of making gold jewellery involves melting, cutting, moulding, polishing etc. which may result in some amount waste of gold. However, retaining a certain amount from the input (10 gm of pure gold for the instant case) before it put into the manufacturing process cannot be treated as wastage or normal loss - here the price is not the sole consideration for the supply and the value of such excess wastage allowed to the applicant shall be considered as non-monetary consideration for the purpose of determination of value of supply of job work services provided by the applicant to his principal. Therefore, the value of supply of services, i.e., making charges on which the applicant is liable to pay tax @ 5% would be determined as per provision of section 15 of the GST Act read with rule 27 of the CGST/ WBGST Rules, 2017. Since the applicant admittedly retains 10 gm of pure gold on account of wastage which is beyond the permissible limit of wastage in the nature of normal loss, the value of pure gold so retained by the applicant shall form a part of value of supply of job work services.
Issues Involved:
1. Taxability of the gain of 10 grams of pure gold retained by the applicant. 2. Liability to pay GST on the gain of 10 grams of pure gold. 3. Determination of time and value of supply if GST is applicable. 4. Classification of the gain as goods or services for GST purposes. Issue-wise Detailed Analysis: 1. Taxability of the Gain of 10 Grams of Pure Gold: The applicant, a job worker, receives 1000 grams of pure gold from the principal for manufacturing gold ornaments. The principal allows a wastage provision of 40 grams, meaning the applicant must return 960 grams of gold ornaments. The applicant sub-contracts the job to another job worker, allowing a wastage of 30 grams, thereby retaining 10 grams of pure gold. The applicant contends that this 10 grams is not a consideration but a result of internal efficiency and bargaining power. Observations: The Authority noted that the provision for wastage is an industry-wide practice and is considered normal loss. However, the Handbook of Procedures by the Ministry of Commerce and Industry prescribes specific wastage norms for the gems and jewellery sector. The applicant's allowed wastage of 4% (40 grams) exceeds these norms. Therefore, the excess wastage (10 grams) retained by the applicant is not considered normal loss but a non-monetary consideration for the job work services provided. Ruling: The 10 grams of pure gold retained by the applicant forms part of the value of supply of job work services and is thus taxable. 2. Liability to Pay GST on the Gain of 10 Grams of Pure Gold: The applicant argues that the 10 grams of gold retained is not a consideration and thus not subject to GST. Observations: The Authority determined that the excess wastage retained (10 grams) is a non-monetary consideration for the job work services. As per Section 15 of the GST Act, the value of supply includes any non-monetary consideration. Therefore, the applicant is liable to pay GST on this value. Ruling: The applicant is liable to pay GST on the 10 grams of pure gold retained as it forms part of the value of supply of job work services. 3. Determination of Time and Value of Supply: If GST is applicable, the applicant seeks to know the time and value of supply. Observations: The value of supply shall be determined under Rule 27 of the CGST/WBGST Rules, 2017, which deals with the valuation of supply where the consideration is not wholly in money. The time of supply would be determined under Section 13(2) of the GST Act, which specifies the time of supply for services. Ruling: The value of the supply shall be determined under Rule 27 of the CGST/WBGST Rules, 2017, and the time of supply under Section 13(2) of the GST Act. 4. Classification of the Gain as Goods or Services for GST Purposes: The applicant seeks clarity on whether the gain should be classified as goods (taxable at 3%) or services (taxable at 5%). Observations: The Authority clarified that the 10 grams of gold retained is part of the value of job work services provided by the applicant. As such, it should be classified as a service and taxed accordingly. Ruling: The value of the 10 grams of gold retained by the applicant shall be part of the value of job work services and taxable at 5% under SAC: 9988. Conclusion: The applicant is liable to pay GST on the 10 grams of pure gold retained as it forms part of the value of supply of job work services. The value of supply shall be determined under Rule 27 of the CGST/WBGST Rules, 2017, and the time of supply under Section 13(2) of the GST Act. The gain shall be classified as a service and taxable at 5%.
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