LEVY OF CENTRAL EXCISE DUTY ON JEWELLERY
If for one measure, Modi’s Budget 2016 can really be appreciated, it is the imposition of Central Excise duty at the rate of one per cent ad valorem on gold jewellery. It is the first time levy. Apart from yielding substantial revenue, it will go a long way towards curbing the menace of black money in the country. However, Coimbatore Jewellery Manufacturers Association moved the Madras High Court seeking a direction not to enforce Central Excise duty on gold jewellery. Granting the stay on levying of the duty till June 3, 2016, Justice M Duraiswamy in his order dated April 29, 2016 said: “since it is submitted that the notification dated March 1, 2016 has not been enforced so far, the respondents are directed to maintain status quo till June 3, 2016.” Obviously, a question mark hovers over its very survival. Why? Is it really burdensome? Why does it look so menacing? Why are the jewellers opposed to it?
TAX BURDEN – LIGHT
Let me first explain how light is the duty imposed on gold jewellery as compared to that on other excisable goods. At present the market value of gold hovers around Rs. 29,000/- per ten grams. Hence, gold jewellery weighing ten grams will have to discharge Central Excise duty of Rs. 290/- only. If a buyer can afford to spend Rs.29,000/- on jewellery, he may as well pay Rs. 290/- towards Central Excise duty. Mind it, the Central Excise duty is an indirect tax payable by the manufacturers. How many jewellery show room owners are manufacturers? Only a few in India on paper. Surprised? Now have a look at their margin of profit. Take a look at the balance sheets of renowned jewellers in India. Their gross profit is invariably twenty per cent.!!!!!!!!!!!!!!
SMALL MANUFACTURERS – EXEMPTED
The government may have been faulted on the ground that the levy will hit the small manufacturers and artisans i.e. goldsmiths involved in making jewellery. This problem has already been taken care of. Manufacturers including artisans and goldsmiths making jewellery valued up to rupees six crores in a financial year have been fully exempted from the levy. Thus, those really effected by the levy are big jewellery manufacturers. A levy of one per cent ad valorem on jewellery, therefore, appears laughable !! Then why this hue and cry?
TAX NET – WIDE
India is the world’s second largest importer of gold after China. According to the All India Gems & Jewellery Federation, the country imported around 900 tonnes of gold in 2014. “Gold import is estimated at around 1000 tonnes in calendar year 2015, compared to around 900 tonnes last year,” said Chairman G V Shreedhar of All India Gems & Jewellery Trade Federation. He also said imports through smuggling are estimated to be around 100 tonnes in 2015. It is estimated that we imported gold worth more than Rs. 18 lakh crores in the past ten years.To this quantity may be added the old jewellery remelted for making new jewellery and of course the smuggled gold, silver and rough and finished diamonds. Thus, on a consevative estimate, it may be safely assumed that the manufacturing activity in this sector amounts to over rupees five lakh crores per year!!!! Is it not sensible to tax such a mind boggling vast manufacturing activity? Why was this sector a holy cow so far? The reason is not far to seek.
In our country real estate, jewellery and bullion and exports provide a tremendous scope for money laundering. Buying jewellery and bullion in black money is the easiest and the least risky. Once Central Excise duty is imposed it would be difficult to hide manufacturing activity and subsequent sales. Thus, a safe haven for converting black money into white will be lost for ever. I, therefore, request the public and right-minded leaders to support the levy of central excise duty on jewellery and pressurise the government against its withdrawal.
(1) Union Budget 2016 – 17
(2) Daily Market Price of gold in local papers
(3) m.ndtv.com for statement by chairman of AIGJTF
(4) PTI report dated Dec.22,2015
(5) World Gold Council report for 2015.
(6) All India Gems & Jewllery Trade Federation
(7) Justification of levy by the incumbent Revenue Secretary, Ministry of Finance, Government of India, N. Delhi.
(8) Market survey of jewellery market in UP.
(9) Stay Order dated 29.4.2016 of Madras High Court on Writ Petition by Coimbatore Jewellery Manufacturers Association
By Vimlesh Kumar