Gold in any form fails to pass the test of second-hand goods - Kerala AAR

Gold in any form fails to pass the test of ‘second-hand goods’; Rule 32(5) [deduction in GST liability] is not allowed. - Kerala AAR in re, Best Money Gold Jewellery Limited

According to a recent ruling by the Kerala Authority for Advance Ruling (AAR), tax reductions provided under Rule 32(5) of the Central Goods and Service Tax (CGST) Rules are not applicable when gold is not considered a second-hand commodity. The Authority, which was comprised of Dr S.L. Sreeparvathy, an IRS, and Shri. Abraham Renn S., an IRS, determined that the applicant’s supply does not meet all of the standards outlined in Rule 32(5) of the CGST Rules 2017. As a result, the benefit of provisions under sub-rule (5) of the CGST Rules 2017 cannot be availed.

The case was filed by Best Money Gold Jewellery Limited, a company that is engaged in the business of purchasing and reselling used or old or second-hand or pre-owned gold jewellery and ornaments from unregistered individuals.
The company sought an advance ruling from the Kerala AAR on whether it could avail the tax reductions provided under Rule 32(5) of the CGST Rules 2017. This rule allows for a reduction in GST liability on the sale of second-hand goods, provided that the goods meet certain criteria.

The AAR ruled that the company could not avail the tax reductions because gold does not meet the definition of "second-hand goods" under the CGST Rules. The AAR found that gold is not considered "second-hand" because it is a commodity that is constantly being mined and produced. As a result, it is not possible to determine whether a particular piece of gold is "second-hand" or not.

The AAR's ruling is significant because it clarifies the definition of "second-hand goods" under the CGST Rules. This ruling will have implications for businesses that are engaged in the sale of second-hand goods, including gold jewellery.

Ruling Details

• Title: M/s Best Money Gold Jewellery Limited
• Authority: Kerala AAR
• Citation: Advance Ruling Number: KER/06/2023
• Dated: 02-Mar-2023

Analysis of Rule 32(5)

Rule 32(5) of the CGST Rules provides a special valuation method for second-hand goods. Under this rule, the value of supply is the difference between the selling price and the purchase price of the goods. However, if the value of supply is negative (i.e., the selling price is less than the purchase price), then the value of supply is ignored.

The purpose of Rule 32(5) is to simplify the valuation of second-hand goods. Under the normal valuation rules, the value of supply would be the transaction value of the goods. However, this can be difficult to determine in the case of second-hand goods, as there may not be a clear market value for the goods.

Rule 32(5) provides a simpler valuation method that is based on the difference between the selling price and the purchase price. This method is easier to apply and is more likely to be accurate in the case of second-hand goods.

The provision also includes a special rule for the purchase value of goods repossessed from a defaulting borrower. In this case, the purchase value is deemed to be the purchase price of the goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

This provision is intended to ensure that the person making the repossession does not have to pay GST on the full purchase price of the goods, even if the goods have depreciated in value since they were purchased.

Rule 32(5) of the CGST Rules provides a simplified valuation method for second-hand goods. This method is easier to apply and is more likely to be accurate in the case of second-hand goods. The provision also includes a special rule for the purchase value of goods repossessed from a defaulting borrower.

The purpose of Rule 32(5) deduction is to reduce the tax burden on businesses that sell second-hand goods. This is because second-hand goods have already been taxed once, when they were originally sold. By allowing for a deduction on the sale of second-hand goods, the GST law ensures that businesses are not taxed twice on the same goods.