GST on New Jewellery Purchases - Is GST Payable Only on the Difference (Value Addition)?

1. Common Misconception

Many messages circulating on social media claim that while buying new jewellery by exchanging old gold, GST is payable only on the difference (value addition) between the old and new jewellery.
This statement is misleading and not fully correct under the GST law.

2. Correct GST Treatment

(a) Basic Tax Rates

• Gold jewellery: 3% GST (1.5% CGST + 1.5% SGST)
• Making charges: Usually included in the composite supply and taxed at the same rate of 3%.

(b) Exchange of Old Jewellery

When an individual sells old jewellery to a jeweller:

• The sale of old jewellery by an individual is not a supply under GST, because it is not made in the course or furtherance of business.
  (Reference: Section 7 of the CGST Act, 2017)

When the jeweller sells new jewellery:

• It is a supply of goods under GST, and GST is payable on the entire transaction value of the new jewellery.
  The deduction of old gold’s value does not reduce the GST base unless the invoice clearly separates the buy-back transaction.

3. Why “GST Only on Difference” Is Incorrect

The claim “GST is applicable only on the difference (value addition)” is not legally supported.
Example:
If a customer buys new jewellery worth ₹1,00,000 and gives old gold worth ₹80,000 as exchange,
then the net payment is ₹20,000.
However, GST is still calculated on ₹1,00,000, not on ₹20,000, because the jeweller’s supply value is ₹1,00,000.

Reason:
Under Section 15 of the CGST Act, 2017, the taxable value is the transaction value of the supply, not the net difference after trade-in.

Only if the jeweller purchases the old gold separately under a buy-back invoice and issues another invoice for new jewellery, both transactions being independent, the two supplies may be treated distinctly.

4. Composite Supply Concept

As per Section 2(30) and Section 8(a) of the CGST Act:

When two or more supplies are naturally bundled and supplied together in the ordinary course of business, the supply is treated as a composite supply, and the GST rate applicable to the principal supply applies to the whole.

Hence, when gold and making charges are billed together, it becomes a composite supply, with gold being the principal supply, and the entire amount (gold + making charges) is taxed at 3% GST.

5. Different Scenarios

Scenario 1: Composite Supply (Jewellery + Making Charges Together)

• Gold value = ₹1,00,000
• Making charges = ₹5,000
• Total = ₹1,05,000
• GST @ 3% = ₹3,150
  Applicable law: Notification No. 1/2017 - Central Tax (Rate), Schedule III.

Scenario 2: Customer Gives Own Gold (Only Making Charges Billed)

If the customer gives his own gold and the jeweller only performs the making work:

• It is treated as Job Work Service, not a sale of jewellery.

• GST applicable on the service value only.
  • Job work on gold/silver jewellery: 5% GST (Notification No. 11/2017 - Central Tax (Rate))
  • Independent design/custom manufacturing: 18% GST.

6. GST Rate Summary

7. Compliance Tips for Customers

• The invoice should clearly show:
  • New jewellery value,
  • Deduction for old gold (if any),
  • Making charges, and
  • GST calculation on the total amount.

• Ask for a proper invoice breakup if the jeweller claims GST is charged only on “value addition.”
• Ensure HUID/BIS hallmark is mentioned for transparency and authenticity.

8. Key Legal References

• Section 7 & 15, CGST Act, 2017 - Scope and valuation of supply.
• Section 2(30) & 8(a), CGST Act - Composite Supply provisions.
• Notification No. 1/2017 - Central Tax (Rate) (03.06.2017) - 3% GST on gold jewellery.
• Notification No. 11/2017 - Central Tax (Rate) (28.06.2017) - 5% GST on job work for jewellery.

9. Conclusion

• The social media message claiming GST is payable only on “value addition” is partially true but misleading.
• Under GST law, the tax base is the entire value of new jewellery, not the net difference after deducting old gold.
• 3% GST applies to composite supplies (gold + making charges).
• If only making services are rendered using customer’s gold, 5% GST applies as job work.
• Proper invoicing and documentation are essential to avoid disputes or overpayment.

For Expert Guidance

Dr. Muhammed Mustafa C T
Senior Tax Consultant & Managing Director - BRQ Associates
???? +91 96331 81898
???? brqassociates@gmail.com | ???? www.brqassociates.com

“Educating India for Better Tax Compliance.”