Excise Duty On Jewellery - The Recent Compliance And Procedural Mechanism

Introduction:

 

The Finance Budget, 2016 introduced excise duty levy on manufacture of both branded and unbranded Jewellery with effect from 01.03.2016 by withdrawing exemption conferred under entry 199 of Notification 12/2012-CE dated 17.03.2012. The Jewellery sector across India went onto indefinite strike as the duty levy would affect their ease of doing business on the concerns that this levy lead into a clumsy procedural and compliance issues and also lamented about the frequent pesters from the officials of Central Excise Department.

 

Taking into consideration, the trepidations of the sector, Central Government has constituted a Committee to interact with the sector to address the procedural and compliance issues. The said committee has submitted their report on 23.06.2016. Vide press release of Finance Ministry dated 13.07.2016, stated that Central Government has accepted all the recommendations of the Committee. Accordingly, they are given legal effect by way of various Notifications and also through Circulars. Let us have a look at the various aspects of the recently notified compliance and procedural mechanism.

 

Leviability of excise duty:

 

Excise duty is applicable on articles of jewellery and parts of articles of jewellery made of precious metals. However, articles of silver jewellery which are not studded with any diamond, emerald, ruby, sapphire i.e. plain silver jewellery are continued to be exempt. This implies that excise duty is applicable on silver jeweller studded with precious stones namely diamond, emerald, ruby, and sapphire. The excise duty is leviable at the rate of 12.5%. Alternatively, excise duty can also be paid at the rate of 1% of the value on the condition that CENVAT Credit should not be availed for inputs and capital goods.

 

Partial exemption for manufacture of jewellery out of jewellery or precious stones supplied by retail customer:

 

In case of any jewellery manufactured by a manufacturer out of jewellery or precious stones supplied by retail customers, exemption is available to the extent of the value of these items supplied by retail customers. This implies that manufacturer is required to pay excise duty on a value that is equal to the value of additional materials used by principal manufacturer or manufacturer and the labour charges charged from the retail customer.

 

It is important to note that this exemption is available only in case of any jewellery or precious stones supplied by retail consumer. If the retail consumer supplies any precious metals (Gold/Platinum supplied in the form of coins, biscuits) for manufacture of jewellery, the benefit of exemption is not applicable. In such cases, even the fair value of such precious metals supplied is required to be included in the value of jewellery.

 

 

 

 

 

 

 

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Valuation of Jewellery manufactured:

 

Excise duty payable on Jewellery manufactured shall be on tariff value basis by principle manufacturer (in case jewellery is manufactured by job worker) or manufacturer as the case may be. Accordingly, it is notified that the value of excisable goods manufactured shall be the value at which they are sold for the first timefrom the registered premises or from the centrally registered premises or branches of such centrally registered premises

 

In case where the retail customer supplies precious metal for manufacture of jewellery, as discussed above, the value for the purpose of payment of excise duty shall be the cost of additional materials used, labour charges charged by principle manufacturer or manufacturer and the value of such metal supplied by retail customer.

 

Exemption is withdrawn for Handicrafts made of precious metals:

 

By virtue of exemption Notification No. 17/2011-CE dated 01.03.2011; exemption is available for all kinds of handicrafts including those made of precious metals. This notification is now amended with effect from 26.07.2016 to with draw exemption for handicrafts made of precious metals viz. gold, silver and platinum. Thus excise duty is applicable even on handicrafts made of precious metals.

 

Closing stock as on 29.02.2016:

 

Confusion prevailed over the applicability of excise duty on closing stock as on 29.02.2016 which are lying in stock at different places viz. Job workers’ premises, workshop or showroom of the principle manufacturer or manufacturer etc. In this regard, it was clarified as follows;

 

29. No excise duty is applicable on jewellery articles which are received from the premises of job workers or any other premises where the manufacture is undertaken and lying in stock as on 29.02.2016 at different premises including branches of principle manufacturer.

 

29. No excise duty is payable on jewellery articles sent on approval to potential customers as on 29.02.2016.

 

29. Excise duty is required to be payable on articles of jewellery lying in stock as on 29.02.2016 with the job worker or any other premises where articles of jewellery were manufactured (including finished articles of jewellery as well as work-in-progress) and are received by principle manufacturer or manufacturer on or after 01.03.2016 to the point of first sale (e.g. showroom)

 

It is also clarified that no stock declaration is required to be filed by a jeweller for this purpose with the jurisdictional Central Excise Authorities.

 

Articles of Jewellery (Collection of Duty) Rules, 2016:

 

In terms of these rules, Central Government has laid down various provisions relating to date for determination of applicable rate of duty, person responsible to pay duty, determination of due date for payment of excise duty, records to be maintained etc. These provisions are broadly summarised as follows;

 

 

 

 

 

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1. Person liable to pay excise duty: In terms of the rules, the responsibility to pay excise duty is on manufacturer where the jewellery is manufactured on his own account and in case where the jewellery is manufactured by principle manufacturer on job work basis through job worker, then the principle manufacturer is responsible to pay excise duty.

 

1. Date for determination of duty: The rate of duty applicable shall be the rate in force on the date when such articles are sold for the first time by manufacturer or principle manufacturer as the case may be from his registered premises or centrally registered premises or branches of such centrally registered premises

 

1. Manner of payment of duty: Excise duty shall be paid by 5th/6th of the month following the month in which first sale is undertaken by principle manufacturer or manufacturer as the case may be. Where the assesse (principle manufacturer or manufacturer) is eligible to claim SSI exemption i.e. turnover for the previous financial year is less than fifteen crores, then assesse can pay duty on quarterly basis i.e. by 5th/6th of the month following the quarter in which first sale is undertaken. However, in case of March month or quarter ending with March month, the due date for excise duty payment is 31st March itself.

 

1. 31st July is the due date for payment of duty for the months of March, April, May and June of 2016: As stated, excise duty is applicable for manufacture of jewellery with effect from 01.03.2016. Considering the concerns expressed by Jewellery sector and the fact that Committee has been constituted for dealing with procedural and compliance issues, Central Government has deferred the due date for payment of excise duty for the months of March, April and May months till 30th June vide Circular 1026/14/2016-CX, dated23.04.2016. It is now provided under these rules, that the due date for payment of excise duty for the above referred months including the month of June, 2016 is 31st July, 2016.

 

1. Daily Stock Account to be maintained by Manufacturer or Principle Manufacturer: Every such assesse is required to maintain separate records for receipt and sale of manufactured and traded articles including their description on a daily basis. These records are required to be maintained on weight and cartage basis.

 

The records and documents to be maintained for manufactured articles includes records and documents showing receipts of articles manufactured or received back from job worker’s premises, quantity of manufactured articles sold on first sale basis within India and for export to outside India. Such records and documents shall be maintained for a period of five years.

 

Similarly, in case of traded articles, the records and documents to be maintained includes records showing the value and quantity of their traded stock at the time of purchase and sale. Such records and documents shall be maintained for a period of five years.

 

1. Articles to be removed on invoice basis: Excisable articles of jewellery sold on first sale basis by principle manufacturer or manufacturer shall be removed only under the cover of an invoice called ‘First Sale Invoice’. The said invoice should contain the details viz. registration number, name of the consignee, description of articles, classification and date of removal by sale. The first sale invoice shall show the value of traded articles if any separately from the value of manufactured articles. The invoice shall be prepared in duplicate; original copy shall be marked to the buyer and duplicate copy for

assesse records.

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1. Job worker need not maintain any documents and records: As discussed above, the job worker is relieved from the responsibility of collecting and paying excise duty for the articles manufactured by them on job work basis. He is also relieved from the responsibility of maintaining any documents or records with respect to the jewellery manufactured by him on job work basis.

 

1. Principle Manufacturer responsible to maintain documents and records for job work: The principle manufacturer is under obligation to maintain all the documents and records as required with respect to the job works given by them. He is required to supply to job worker any inputs or articles for job work on the basis of a challan, issue voucher or any other document containing details viz. registration number, description & quantity of inputs or articles, name of the person carrying the inputs or articles along with his signature and proof of identity and date of supply of inputs or articles. The principle manufacturer shall also be required to maintain appropriate documents and records for the inputs or articles if any received back from the premises of job worker.

 

1. Duty payable even in case the articles of jewellery are lost, destroyed or found short: It has been expressly clarified that in case where the articles of jewellery are lost, destroyed or found short at any time before their first sale, the principle manufacturer or manufacturer shall be liable to pay duty of excise as if such goods are sold. In such cases, the value of these articles, where they are manufactured on job work basis shall be equal to the cost of raw materials plus job work charges paid by the principle manufacturer. In case of direct manufacture, then the value shall equal to cost of raw materials plus the making charges charged by manufacturer for similar articles.

 

1. Inputs, semi-finished or finished articles can be removed for certain purposes without payment of duty: A manufacturer or principle manufacturer is permitted to remove any inputs, semi-finished articles or finished articles for further processing, testing, repair, re-conditioning, hallmarking, display in exhibitions or for any other purpose including as samples to any other premises. No excise duty is required to be paid for removal of articles for any purpose stated above other than on account of first sale. In such cases, the removal shall be undertaken on the basis of a challans, issue voucher or any other document as referred for the purpose of removing inputs or other articles to job worker.

 

1. Sales return of duty paid stocks: Sometimes, the jewellery articles sold on first sale basis may have been returned by customers while the excise duty charged would have been paid to the Central Government. In such cases, the jewellery articles returned by customers can be accounted as trading stock and can be sold subsequently to other customers without charging any excise duty.

 

1. Optional Scheme for stock maintenance: As discussed above, the principle manufacturer or manufacturer is required to maintain separate physical stocks and stock records are also required to be maintained separately for manufactured and traded articles of jewellery. Excise duty is required to be paid on all first sales made out of manufacturing stock. No excise duty is required to be paid on all sales made out of trading stock. In case where assesse finds it difficult to maintain details of sales whether made out of manufacturing stock or out of trading stock, he is entitled to optional scheme where he is required to maintain details of stock separately for traded and manufactured articles. There is no need to ascertain the exact quantity of sales made out of manufactured stock and traded stock. In such cases, the sales are deemed to have been taken place in the following sequential manner;

 

 

 

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1. Out of opening stock of manufactured goods of a particular month

 

1. Out of opening stock of traded goods of a particular month
2. Out of quantity of stock manufactured during the month
3. Out of quantity of stock purchased during the month

 

This is an optional scheme which shall be exercised by written declaration to excise authorities by 28th February of previous financial year. This option once exercised shall not be withdrawn for the whole of financial year. It is clarified that with respect to March, 2016 and for the FY 2016-17, this optional scheme shall be exercised on or before 31st July, 2016.

 

Quarterly Return: In case of assesses engaged in manufacture of only articles of jewellery falling under chapter 7113; paying excise duty at the rate of one per cent without the benefit of CENVAT credit on inputs and capital goods and is not engaged in manufacture of any other types of excisable goods, a simple return in Form ER-8 shall be filed once per quarter by 10th of the month immediately following the quarter. It is also clarified that for the quarters ending March, 2016 and June, 2016, the return shall be filed by 10th August, 2016.

 

Relief from filing Annual Return: Assesses engaged in manufacture of articles of Jewellery falling under chapter 7113 are exempt from the requirement of filing annual return.

 

Registration: As stated above, job worker is completely relieved from Central Excise requirements. Thus, there is no need for them to register under Central Excise. Manufacturer and Principle Manufacturer are required to obtain registration. They can register each of their business premises separately under central excise or they can obtain Centralised registration for all their business premises by registering their business premises where centralised billing or accounting system is maintained with respect to manufacturing and sales undertaken through their other business premises.

 

It is clarified that there is no need to submit ground plan of the manufacturing premises in order to obtain registration. No physical inspection of the premises will be conducted by officials of Central Excise Department in order to grant registration. It is also clarified that the existing manufacturers are required to obtain registration under Central Excise by 31st July, 2016.

 

Small Scale Industrial (SSI) Exemption:

 

The general exemption namely SSI exemption is applicable to articles of jewellery also. It is originally notified as on 01.03.2016 that exemption is available in the current financial year on value of first clearances up to six crores of rupees provided the turnover in the preceding financial year does not exceed twelve crores of rupees. For the month of March 2016, it is specified that this exemption is available for clearances up to a value of Rs. 50 lakhs.

 

This SSI exemption benefit is now enhanced. Accordingly, exemption is applicable for first clearances up to a value of ten crores provided the turnover in the preceding financial year does not exceed fifteen crores of rupees. It is also clarified that for the month of March 2016, exemption is available for clearances up to a value of Rs. 85 lakhs. For the purpose of this exemption benefit, the turnovers of all branches/premises of manufacturer or principle manufacturer as the case may be shall be clubbed.

 

 

 

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Clarification on audit proceedings:

 

With respect initiation of audit proceedings on the assesses by Central Excise Department officials, the following are the assurances given by the Central Government;

 

1. No audit shall be conducted for the first two year period on assesses whose excise duty payments (cash plus credit) are less than one crore rupees.
2. In case assesses paying excise duty less than 50 lakh rupees, audit will be conducted after the expiry of two year period on 5% of the total number such assesses.

 

1. In case of assesses paying excise duty of 50 lakhs or more, audit will be conducted after the expiry of two year period with a frequency of one audit in every five years.

 

1. In case of assesses paying excise duty between one crore to three crores, audit will conducted once in every two years.

 

1. In case of assesses paying excise duty of three crores and above, audit will be conducted every year.

 

1. It is also clarified that audit conducted on assesses will only be in the form of desk review by the officers without physically inspecting the premises of assesses.

 

1. Irrespective of duty involved, it is provided that show cause notice shall be issued and adjudicated only by the officers of the rank of Commissioners. It is also provided that summons will be issued only with the approval of Commissioner.

 

Conclusion:

 

In view of the above discussion, the efforts were made to envisage fairly simple and easy to comply mechanism for Jewellery sector when compared to the regular procedures under Central Excise Law as applicable to all types of assesses. These would include collection of duty only upon first point of sale basis, enhanced SSI exemption limit, simple return, optional stock maintenance scheme etc. It is also assured through clarificatory circulars that there is no need to worry about ‘inspector raj’ of the Excise Department. It is expressly provided that there are no physical visits by officers either for registration or for the purpose of conducting audits. Let’s hope all these would ensure smooth transition by Jewellery sector towards excise duty levy.