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EXCISE DUTY ON JEWELLERY— THE RECENT COMPLIANCE AND PROCEDURAL MECHANISM

Contributed by CA Sri Harsha & CA Manindar

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. We

ponder the practical implications of these provisions in the form of FAQs. Before we proceed to do so,

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.

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 time from 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.

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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;

a) 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.

b) 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

c) 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.

d) 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, dated 23.04.2016. 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.

e) 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.

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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.

f) 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.

g) 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.

h) 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.

i) 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.

j) 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.

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k) 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.

l) 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;

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

b. Out of opening stock of traded goods of a particular month

c. Out of quantity of stock manufactured during the month

d. 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.

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 excise duty is required to be paid only on the 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, bars) 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.

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

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and platinum. Thus excise duty is applicable even on handicrafts falling under chapter 7113 i.e. on

handcrafted jewellery made of precious metals and stones.

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;

a) 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 (workshop) and lying in

stock as on 29.02.2016 at different premises including branches of principle manufacturer.

b) No excise duty is payable on jewellery articles sent on approval to potential customers as on

29.02.2016.

c) 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 jewellery manufacturer for this

purpose with the jurisdictional Central Excise Authorities. This implies that a jewellery manufacturer can

claim this exemption suo moto on the basis of the records and documents maintained by them.

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.

In case of other assesses who are paying excise duty at 12.5% by availing CENVAT Credit on inputs and

capital goods, then the regular ER1/ER3 return as the case may be shall filed.

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.

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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 with retrospective effect. 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.

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;

a. 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.

b. 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.

c. 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.

d. In case of assesses paying excise duty between one crore to three crores, audit will conducted

once in every two years.

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

year.

f. 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.

g. 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.

Clarification on proceedings relating to summons, search, seizure, arrest and prosecution:

a. Department officials are not entitled to carry out any transit checks during movement of semi-

finished or finished articles of jewellery.

b. Visits, search of the premises of manufacturer or principle manufacturer shall be carried out

only when there is a clear reason to believe that there is an act of evasion formed at the level of

Commissioner or an equivalent officer. Such visits shall not disturb the business of

manufacturers or principle manufacturers both at the premises. Further no such visits shall be

conducted in such cases where the expected duty evasion involved is less than Rs. 75 lakhs.

c. Such visits shall not be carried out for issues relating to matters of legal interpretation and for

procedural or compliance matters including issuance of invoices, registers.

d. At any circumstances, such proceedings should not be taken upon job workers/artisans.

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e. Summons shall be issued only with approval of Commissioner or an equivalent officer.

f. Arrest and prosecution of manufacturers or principle manufacturers shall be resorted to only

when the duty evasion involved is Rs. 2 crores or more

g. If any goods are seized during the search proceedings, they must be given back to the

manufacturer provisionally within three working days. The amount of security sought for such

provisional release should be equal to the duty payable on such seized goods.

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FREQUENTLY ASKED QUESTIONS

Levy of Excise Duty on Jewellery:

1. What is excise duty on jewellery? From when the levy of excise duty came into effect?

Excise duty is a duty levied on manufacture of excisable goods specified under Central Excise Tariff.

Chapter 7113 covers excisable goods of the nature of articles of jewellery. All these days these goods

are exempt from excise duty. The duty levy is effective from 01.03.2016. Notification No 12/2016-CE

dated 01.03.2016 has substituted Entry 199 of Notification No 12/2012-CX dated 17.03.2012

withdrawing the full exemption, thereby bringing the levy into effect.

2. What kinds of jewellery are now subject to excise duty?

Excise duty is applicable to manufacture of all kinds of jewellery except articles made up with plain

silver. However, if the silver articles are studded with diamond, ruby, emerald or sapphire the

manufacture of same shall also be subjected to excise duty. Thus jewellery made of gold, platinum and

other precious metals whether or not studded with diamond, emerald or sapphire and silver jewellery

studded with diamond, emerald or sapphire attracts excise duty.

3. Whether only manufacture of branded jewellery is subjected to excise duty?

No. Excise duty is presently applicable on the manufacture of branded and unbranded jewellery. Hence,

manufacture of all kinds of jewellery whether branded or unbranded shall attract excise duty except

those specified in FAQ 2.

4. What is the rate of excise duty on the manufacture of articles of jewellery?

Excise duty is payable either at 1% of the value of excisable goods or at 12.5% of such value at the

option of manufacturer. The option of paying excise duty at 1% comes with a condition that no credit of

excise duty or additional customs duty paid on inputs and capital goods shall be availed. If the rate of

excise duty is adopted as 12.5%, the credit of excise duty paid on inputs and capital goods can be

availed.

5. Whether the service tax paid on renting of showroom/ premises, advertisement, branding, audit etc.

by manufacturer can be availed as CENVAT credit if the manufacturer is opting to pay excise duty @

1%? Would the eligibility change if the excise duty is paid at 12.5%?

There is no restriction of availment of credit of service tax paid on input services for the manufacturer.

Hence, he can avail the credit of service tax paid on input services even he is opting for discharge of

excise duty @ 1%. However, credit is allowed to be taken only on those services which qualify as input

services in light of the definition of ‘input service’ given under CENVAT Credit Rules, 2004. The answer

remains same even if the manufacturer wishes to pay excise duty @ 12.5%. In such case, he is also

allowed to take credit of inputs and capital goods.

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6. Is excise duty payable by all class of manufacturers including Job workers?

No. In terms Jewellery (Collection of Duty) Rules, 2016, the term ‘assesse’ is defined to include only

manufacturers, who manufacturer jewellery on their own account and also principle manufacturers,

who gets the jewellery, manufactured through job workers. Thus job workers are not considered as

assesses for the purpose of payment of excise duty. In view of this, all job workers who works for

principle manufactures in relation to manufacture of jewellery are relieved from excise duty payment.

7. Whether the excise duty payable at 1% or 12.5% as the case may be can be collected from customer?

As excise duty is an indirect tax, the assesse is entitled to collect the duty amount from the customer

and pay to Central Government. In view of this, the manufacturer or principle manufacturers as the case

may be are entitled to collect the excise duty from their customers by charging the same in the invoice

issued by them.

8. Is excise duty applicable for Jewellery being finished stock as on 29.02.2016 while levy being effective

from 01.03.2016?

Prior to 01.03.2016, manufacture of jewellery are leviable to excise duty but are exempt. With effect

from 01.03.2016, the exemption is withdrawn. Normally, in such cases, excise duty is applicable on all

manufactured stock lying with the manufacturer as on 29.02.2016.

However, in case of jewellery sector, it has been clarified that no excise duty is applicable on finished

goods lying in stock as on 29.02.2016 in various premises of principle manufacturer or manufacturer

from which first sales are affected. These premises are nothing but showrooms in general. Also clarified

that no excise duty is payable on finished goods, that are sent to potential customers as on 29.02.2016

for sale on approval basis.

It is also clarified that excise duty is payable with respect to finished goods and stock lying in as working

in progress as on 29.02.2016 with the job workers and the premises of manufacturers where jewellery is

manufactured i.e. workshops, but are removed on or after 01.03.2016 to any other premises of

manufacturers or principle manufacturers for effecting first sale.

9. Whether repairs, alterations undertaken on the existing jewellery attract excise duty?

It has been expressly clarified that repairs, alterations undertaken on the existing jewellery which do not

change the identity, character and use of the goods do not result in a new item is not ‘manufacturing’

and may not attract excise duty.

Valuation:

10. As stated excise duty is payable by manufacturer or principle manufacturer as the case may be. What

is the value on which excise duty is applicable?

Excise duty on jewellery is payable by manufacturer or principle manufacturer on tariff value basis. The

tariff value is notified as the price at which the jewellery is being sold for the first time after their

manufacture.

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In case the jewellery is manufactured from precious metals supplied by a retail customer; the tariff

value is the total of the material cost if any used by the manufacturer or principle manufacturer, labour

charges collected for manufacture of the said jewellery and the cost of precious metal supplied by the

jewellery manufacturer.

11. I have manufactured jewellery. The said jewellery manufactured is removed from the workshop to

showroom and from there to an exhibition for display. Whether I am required to pay excise duty?

When the jewellery manufactured is intended for sale, the liability to pay excise duty arises only when

the jewellery manufactured is removed from the showroom on sale. This is the first point of sale and

excise duty is payable on the tariff value as applicable at the first point of sale. In case where the said

jewellery is removed from workshop to showroom, no excise duty is payable at the time of their

removal from workshop. Similarly where the jewellery is removed from showroom for any purposes like

to display in an exhibition, sent to customer premises for sale on approval basis, no excise duty is

payable at this point of time, as the removal is temporary and there is no sale.

12. I am a principle manufacturer. I got certain jewellery manufactured through job worker. The same is

not sold by me but used personally. Considering the fact jewellery is used personally and there is no

sale, tariff value is not applicable. Therefore, there is no need to pay excise duty. Whether my

understanding is correct?

The above understanding is not correct. Excise duty is applicable on manufacture of goods. Whether the

goods are sold or used personally will not affect the duty liability. Further, Tariff value is notified only for

the above two scenarios as discussed in FAQ 10. In all other cases including the present case, value shall

be ascertained based on the provisions of Section 4 Central Excise Act, 1944 read with the Central Excise

Valuation (Determination of Price of Excisable Goods) Rules, 2000. Accordingly, in terms of Rule 4, such

goods shall be valued at the value of similar jewellery sold to outside customers at the time near to the

removal of jewellery in the present case.

13. I am a manufacturer. I got a necklace manufactured at a workshop. I have brought the necklace to

showroom. I have sold this necklace to a customer for Rs. 65,000/-. What is the value I have to take for

the purpose of payment of excise duty?

As discussed in FAQ 10, excise duty is payable on tariff value basis which is nothing but the value at

which the jewellery is being sold at the first point of sale. In the instant case, jewellery is sold for the

first time after their manufacture in the show room. Accordingly, the value shall be the price at which

they are sold to the customer i.e. 65,000/-

14. A retail customer has given gold bars worth Rs. 5,00,000/- to a manufacturer for manufacture of

jewellery of a particular design. Precious stones worth Rs. 2,00,000/- are used by manufacturer in the

manufacture of jewellery. The manufacturer has also charged Rs. 50,000/- towards labour

charges/making charges. What is the value on which excise duty is payable?

In the present case, retail customer has supplied gold bars which are used in the jewellery

manufactured. In such cases the tariff value of the jewellery shall be the total of value of gold bars,

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value of precious stones used by manufacturer and the labour charges/ making charges. In the present

case, the sum total of these components is Rs. 7,50,000/-. Accordingly, excise duty is to be charged at

1%/12.5% as the case may be on this value.

15. I am a principle manufacturer. I have sent gold bars to a job worker on 15.08.2016 for manufacturer of

jewellery. The value of these gold bars on 15.08.2016 is Rs. 5,00,000/-. The job worker has

manufactured jewellery on 20.08.2016. The jewellery so manufactured by job-worker is received at the

showroom on 22.08.2016. Job work charges charged by job worker is Rs. 3,00,000/-. The said jewellery

is sold to customer on 25.08.2016 at Rs. 10,00,000/-. What is the value on which excise duty is

payable?

As discussed in FAQ 10, excise duty is payable on tariff value basis when goods are sold for the first time

by manufacturer or principle manufacturer. This tariff value is nothing but the value at which the

jewellery is being sold at the first point of sale. In the instant case, jewellery is sold for the first time at

showroom on 25.08.2016 after receiving the same from job worker for Rs. 10,00,000/-. This value

should be considered as value for the purpose of charging excise duty. The factors like value of gold

bars, job work charges are all irrelevant.

16. I am a jewellery merchant. I bought jewellery from a manufacturer for Rs. 4,00,000/-. The manufacture

has charged excise duty at 1% at the time of buying the jewellery. The said jewellery is brought to my

showroom and sold to a customer for Rs. 6,00, 000/-. Whether, I am required to pay any excise duty at

the time of sale to customer? Would the position change if the manufacturer has not charged excise

duty?

Excise duty is applicable on manufacture of jewellery. Duty is assessed and collected at the first point of

sale by manufacturer or principle manufacturer as the case may be. In the instant case, jewellery is

manufactured by a manufacturer on his own account and then sold to the jewellery merchant. This is

the first point of sale. Duty is assessed and collected at this stage only. Subsequent sales are treated as

trading activity and no excise duty is required to be paid on such second and subsequent sales.

Accordingly, no excise duty is required to be paid in the present case by jewellery merchant for sale to

his customer.

The position would not change even if the manufacturer has not charged excise duty at the time of sale

to jewellery merchant. The responsibility to assess and collect duty on jewellery manufactured is on

manufacturer or principle manufacturer when they are selling i.e. first sale. In the case, no excise duty is

charged by manufacturer. The second and subsequent sellers have no responsibility to assess and

collect excise duty. Therefore there is no need for jewellery merchant to collect excise duty from his

customer even if the manufacturer has not charged excise duty at the time of sale to him.

17. I am a manufacturer as well as trader of jewellery by buying jewellery from various manufacturers. As

discussed in the above FAQ 15, second and subsequent sellers are not required to charge excise duty.

Sometimes, I sell jewellery out of manufacturing stock and trading stock in a single transaction to one

particular customer. Say necklace out of manufacturing stock is sold for Rs. 5,00,000/- and bracelet out

of trading stock for Rs. 75,000/-. How should I collect excise duty?

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In such case, only the sale happening out of manufacturing stock should be subject to excise duty i.e.

necklace. Therefore excise duty should be charged in the invoice only on sale price of necklace i.e. Rs.

5,00,000/-. No excise duty is to be charged on sale of bracelet being out of trading stock.

18. Apart from excise duty, sales tax/VAT is also applicable upon sale of manufactured Jewellery. Which of

these duties/taxes is to be charged first? If excise duty is charged first, then whether VAT is chargeable

on price including excise duty or otherwise?

Excise duty is chargeable upon manufacture on the value of excisable goods. It is clearly spelt out under

the law that any CST/VAT collected from customers shall be excluded from the value of excisable goods.

On the other hand, there is no corresponding specific provision under VAT laws to exclude excise duty

collected from customers. Further State VAT laws and CST law are not integrated with Central Excise

Law to facilitate any cross credits of VAT/CST and excise duty. In view of this reason, CST/VAT shall be

calculated on the price of Jewellery including excise duty collected.

Accordingly, excise duty is to be charged first on the actual price (excluding all taxes) of the Jewellery.

Subsequently VAT is to be charged on an amount equal to the sum of actual price of jewellery and

excise duty charged.

It is also clarified through press release by Government on 13.07.2016, where excise duty is not charged

separately in the invoice, the value for the purpose charging VAT shall be considered as cum-duty value

{value + excise duty}.

Payment of Excise Duty:

19. I am a manufacturer. On 12.08.2016, jewellery is manufactured at a workshop. The jewellery is

brought to the showroom on 14.08.2016. The same is sold on 28.08.2016 for a customer for a price of

Rs. 75,000. When should I pay the duty to Government?

As discussed previously, duty is assessed and duty is collected on the value at which the jewellery is sold

at the first point of sale. Accordingly, in terms of Rule 6 of Jewellery (Collection of Duty) Rules, 2016

excise duty is payable 6th day of the month following the month in which first sale is affected. In case if

the manufacturer or principle manufacturer turnover in the previous financial year is less than 15 crores

(limit prescribed for SSI exemption), then duty is payable by 6th of the month following the quarter in

which first sale is affected. In case, the sale is affected in month of March or quarter ending with March,

then duty is payable by 31st March.

In this case, jewellery is manufactured on 12.08.2016 and brought to the showroom on 14.08.2016. The

jewellery is sold at showroom (being the first point of sale) on 28.08.2016. The manufacturer has to

charge the excise duty from customer at the time of sale on the value of Rs. 75,000/- at 1% or 12.5% as

the case may be. The duty is payable by 6th of following month i.e. 06th September, 2016. In case where

the manufacturer turnover in the previous financial year is less than 15 crores, then excise duty is

payable by 6th of the month following quarter July to September i.e. 6th of October.

20. It has been clarified vide Circular No. 1021/9/2016-CX dated 21.03.2016 that duty payable for the

months of March, 2016, April, 2016, May 2016 can be paid along with the duty payable for the month

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of June, 2016 i.e. on or before 06.07.2016. However, the latest rules, procedures are notified on

26.07.2016 which is much after the applicable due date. Whether I am required to pay interest when I

am paying excise duty on or after 26.07.2016 for these months?

It has been expressly clarified under sub-rule (2) of Rule 6 of Jewellery (Collection of Duty) Rules, 2016

that the due date for payment of excise duty for the months of March, 2016; April, 2016; May 2016 and

June, 2016 is 31.07.2016. In case, the payments are being made after 31.07.2016, interest is payable at

the rate of 15% for the period of delay starting from 01.08.2016 till the date of payment.

Registration:

21. What is the procedure for registration with central excise authorities?

The manufacturer has to obtain central excise registration by filing an online application on

www.aces.gov.in. The registration shall be granted within 2 working days.

22. I have heard that registration under central excise shall not be granted unless the premise is physically

verified by the authorities. Does this hold good for the jewellery manufacturers also?

The manufacturers of articles of jewellery are exempted from physical verification. It is also expressly

clarified that there is no need to submit ground plan of their premises for which they are seeking

registration. The registration shall be granted within 2 days once an application is made online. The

necessary documents shall be sent to the central excise authorities vide post. Further, it is specifically

clarified that there is no requirement to submit the ground plan of the registered premises.

23. I am having manufacturing activity at multiple premises (workshops) and also have multiple

showrooms. In such a case, should I opt for separate registration for each premise or is there any

option where I can get all premises registered as one unit?

The manufacturer of jewellery has given an option of registering a single premise where the

manufacturer has a centralised billing or accounting system in respect of jewellery manufactured or

produced by different factories or premises. Further, such premise should have the accounts/records

showing receipts of raw materials and finished excisable goods manufactured or received back from job

workers are kept. This place could be at the option of the manufacturer. It can be a workshop where all

the details of jewellery manufactured including that of other workshops are maintained or showroom or

a corporate office of the manufacturer where entire records are maintained or even a showroom of the

manufacturer.

In the instant case, the manufacturer is having multiple workshops and showrooms. In such cases, he

can opt for centralised registration by maintaining centralised accounts or billing system at one such

premise.

24. Whether the premises of Job workers (gold smiths/artisans) shall also be required to be registered by

Principal Manufacturer under Central Excise?

As discussed under FAQ 10, with respect to jewellery manufactured by job-workers (gold smith/artisan),

the responsibility for assessment of excise duty, collection of excise duty and payment to Central

Government is on Principal Manufacturer at the time when he is selling the goods for the first time.

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However this responsibility does not require him to register a job worker premises under Central Excise.

Thus there is no need for Principal Manufacturer to register the premises of gold job workers

(smiths/artisans).

SSI Exemption:

25. Is there any value based exemption (similar to turnover based exemption under VAT) for the

manufacturer or principle manufacturer as the case may be? Are they liable to pay excise duty from

the first clearance in the year?

The Manufacturer or Principal Manufacturer is exempted from excise duty for the value of clearances

till Rs 10 Crores in the current Financial Year subject to a condition that the value of clearances in the

preceding financial year is less than Rs 15 Crores. Please note that the value based exemption is

optional and not mandatory. A particular assesse can ignore this exemption and can pay excise duty for

all his clearances.

26. I am a manufacturer and turnover for the Financial Year 2015-16 is 11 Crores. What is the exemption

available for me in the current Financial Year 2016-17?

As stated in the response to FAQ 25, the manufacturer shall be eligible for an exemption from payment

of excise duty till Rs 10 Crores of clearances in the current financial year. Clearances of jewellery post

the limit Rs 10 Crores shall be subjected to excise duty.

27. I am a manufacturer and turnover for the Financial Year 2015-16 is 15.1 Crores. What is the exemption

available for me in the current Financial Year 2016-17?

Since the turnover pertaining to preceding financial year has exceeded Rs 15 Crores, the manufacturer

shall not be eligible for the exemption for the first Rs 10 Crores clearances. Entire clearances made in

current financial year 2016-17 are subjected to excise duty.

28. I am a manufacturer and turnover for the Financial Year 2015-16 is 17 Crores. However, out of the said

turnover, 3 crores pertaining to sale of jewellery which is not manufactured by me but purchased from

another manufacturer. What is the exemption available for me in the current Financial Year 2016-17?

In order to be eligible for exemption of Rs 10 Crores for the current financial year, the condition that has

to be satisfied is that the preceding financial year turnover should not exceed Rs 15 Crores. Only sale of

jewellery that was manufactured by retailer either on his own or through job worker (gold

smith/artisan) shall alone be considered for this purpose. The turnover for this purpose shall not include

the turnover on which no excise duty is required to be paid for any reason. In the instant case Rs 3

crores worth jewellery traded is being purchased from another manufacturer on which no excise duty is

payable by him. Hence, the turnover of Rs 3 Crores stands excluded from the total turnover and since

the balance turnover is Rs 14 Crores (17-3), which is less than Rs 15 Crores, the manufacturer shall be

eligible for an exemption up to Rs 10 Crores in the current financial year.

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29. Excise duty is applicable with effect from 01.03.2016. Therefore sale of manufactured jewellery in the

month of March, 2016 attracts excise duty. However the SSI exemption as detailed above is applicable

on yearly basis, is there any value based exemption for the month of March, 2016?

Since the duty is applicable from 01.03.2016, an exemption has been provided for the clearances

affected in the month of March, 2016. The manufacturer is exempted till clearances amounting to Rs 85

lakhs subject to a further condition that if the previous financial year turnover i.e. of FY 2014-15 does

not exceed Rs 15 Crores.

Other Exemptions:

30. I am a manufacturer engaged in manufacture and sale of articles of jewellery. Is there any exemption

applicable on the jewellery manufactured by me?

Notification 27/2106-CE dated 26.07.2016 provides exemption when jewellery is manufactured to a

retail customer under the following two circumstances.

a. Jewellery is manufactured out of old jewellery supplied by the retail customer; or

b. Jewellery is manufactured out of precious stones supplied by the retail customer.

The exemption available for manufacture in the above two circumstances is only a partial exemption

to the extent of the value of such jewellery or precious stones supplied by retail customer. Excise duty

is required to be paid on the value of material used by the manufacturer and also the labour charges

charged by him.

31. I am a manufacturer engaged in manufacture of jewellery on the basis of gold bars supplied by retail

customers. Whether I am entitled to claim exemption to the extent of the value of gold bars supplied

by retail customers under Notification 27/2106-CE dated 26.07.2016?

The partial exemption under Notification 27/2016-CE dated 26.07.2016 is applicable only in cases where

the jewellery is manufactured out of jewellery or precious stones supplied by retail customer. It is not

applicable to cases where the retail customer has supplied precious metal (gold bars) but not their

existing jewellery.

Further as mentioned in FAQ 10, the tariff value for manufacture out of precious metals supplied by

retail customer is notified as sum total of the material cost if any used by the manufacturer labour

charges collected for manufacture of the said jewellery and the cost of precious metal supplied by the

retail customer. In view of this reason, the manufacturer in the present case is not entitled to any

exemption.

32. I am a manufacturer engaged in manufacture of gold bars out of obsolete stock of jewellery for

various jewellery merchants and retail customers also. Is there exemption applicable to this activity?

Entry no. 188 of the Notification 12/2012-CE dated 17.03.2016 provides exemption for manufacture of

primary gold manufactured with the aid of power. For the purpose of this exemption, the term ‘Primary

gold’ is defined to mean gold in any unfinished or semi-finished form and includes ingots, bars, blocks,

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slabs, billets, shots, pellets, rods, sheets, foils and wires etc. In view of exemption, the manufacturer of

gold bars out of obsolete stock of jewellery is exempt from excise duty.

33. I am a manufacture of hand-crafted jewellery. Is there any exemption applicable to me?

Notification 17/2011-CE dated 01.03.2011 provides exemption for manufacture of all types of hand-

crafted jewellery. With effect from 26th July, 2016, exemption is withdrawn for hand-crafted jewellery.

Therefore, the said jewellery removed on or after 26th July, 2016 would be subject to excise duty.

34. Whether export of jewellery is exempt from excise duty? If so, what are the procedures to be followed?

Like any other exports, exports of jewellery are exempt and are not subject to excise duty. The normal

procedures prescribed in general for all other types of manufacturers are not suitable for manufacturers

of jewellery. It is now clarified vide 1042/30/2016-CX dated 26th July, 2016 that simplification of export

related procedures would be undertaken after consultation with Department of Commerce, Trade and

Industry.

It is clarified that there is no need for Jewellery exporters to get the Letter of Undertakings (LUTs)

ratified by Excise Authorities. They can simply export the jewellery on self- declaration basis and

submission of the LUTs (without ratification by Excise officers) till the detailed procedures are notified in

this regard.

Invoicing:

35. As a manufacturer of jewellery, do I need to issue any invoice under Central Excise which selling the

jewellery? If so, what are the requirements of this invoice?

Every manufacturer or principle manufacturer as the case may be while selling the jewellery to a

customer at the first point of sale is required to issue invoice under Central Excise charging excise duty.

The invoice should contain details viz registration number, name of the consignee, description of

articles, classification and date of removal by sale. The invoice shall be signed by manufacture or his

agent and shall be issued in duplicate while the original copy is for the buyer.

36. I am a principle manufacturer who gets my jewellery manufactured through a job worker. Do I need to

issue any document for sending the material to job worker?

Vide Rule 9 of Jewellery (Collection of Duty) Rules, 2016, when material (any inputs/articles) is required

to be sent to a job worker for any process to be undertaken by him, then the same shall be undertaken

by way issuing a challan /issue voucher/other document containing details viz name and registration

number of the principal manufacturer; description and quantity of inputs or articles; name of the

person carrying the input or articles along with his signature and proof of identity; and date of

supply of inputs or articles.

37. Excise duty is payable only when the jewellery manufactured is sold at the first point of sale.

Sometimes a manufacturer sends the inputs, semi-finished and finished articles before their sale for

further processing, testing, repair and reconditioning, hallmarking, display in exhibitions or for any

17

other purpose including as samples to some other premises. In such cases, is there any requirement to

move these goods under the cover of an invoice/challan?

Yes. In all such type of cases, the inputs, semi-finished goods and finished goods shall be issued under a

challan/issue invoice. The said challan/invoice shall be similar to the one used while sending the

inputs/articles to a job worker and it shall contain all the details as mentioned in FAQ 36.

Returns:

38. I am manufacturer paying excise duty on jewellery manufactured and sold by me. Am I obliged to file

any returns to the central excise authorities?

Yes, manufacturers of Jewellery are required to file periodical returns. In case a manufacturer has

chosen the option of paying excise duty at 1% without CENVAT Credit on inputs and capital goods, then

he is required to file a simple return in form ER-8, once for every quarter by 10th of month immediately

following the relevant quarter.

In case of a manufacturer who has chosen the option of paying excise duty at 12.5% by availing CENVAT

Credit on inputs and capital goods, then he is required to file return in Form ER-1, once for every month

by 10th of the immediately following month. In case if the turnover of the said manufacturer in the

previous financial year does not exceed 15 crores, he can file return in Form ER-3 once for every quarter

by 10th of the immediately following month.

39. Apart from monthly/quarterly returns, an excise assesse is required to file an annual information

return by 30th December of the Financial Year following the Financial Year to which the return pertains

to. Is jewellery manufacturers are also required to file this annual information return?

No. Jewellery manufacturers are not required to file this annul information return. They are relieved

from the requirement of filing this return.

40. What is the due date for filing return for the quarter ending March, 2016 and June 2016?

It has been specified that the due date for filing return for the quarter ending March, 2016 and June,

2016 is 10th August, 2016.

Records:

41. Is there any requirement for job workers (gold smiths/artisans) to maintain any records under Central

Excise with respect to the job works they undertake for Principle Manufacturer?

In terms of sub-rule (4) of Rule 9 of Jewellery (Collection of Duty) Rules, 2016, job workers are

completely relieved from maintenance of any records evidencing the process undertaken by them with

respect to the job works undertaken by them. Thus there is no requirement for job worker to maintain

any records.

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42. What are the records to be maintained by Jewellery Manufacturers?

At the time of Budget, 2016 wherein excise duty is introduced on jewellery sector it was expressly

clarified that documents maintained for VAT or Bureau of Indian Standards shall be suffice for Excise

purpose also. Also clarified that private records of jewellery manufacturer providing details of stock on

daily basis is accepted for the requirement of Daily Stock Account. However the recent notifications and

clarificatory circulars do not provide for such assurance. Moreover vide Rule 7 under Jewellery

(Collection of Duty) Rules, 2016, it has been expressly provided that daily stock account should be

maintained in a particular manner. It is also stated that Daily Stock Account is requirement to be

maintained for both trading and manufacturing articles separately. Further, it is expressly provided that

the records are required to be maintained for a period of five years. Therefore, going by the normal

requirements of Central Excise Law, the Manufacturer or Principle Manufacturer of jewellery are

required to maintain following records.

a. Daily Stock account

b. Raw Material Input Register to record the details of raw material purchased and issued to

production.

c. Job work register to record the details of material sent to job worker and goods received from

him.

d. CENVAT Credit Account towards receipt and utilisation of inputs, capital goods and input services.

The above records should also be backed by reasonable documents.

43. What is daily stock account? Whether I am required to maintain this account for my trading stock

also?

Daily Stock Account is required to be maintained by every manufacturer for excisable goods

manufactured by him under Rule 10 of the Central Excise Rules, 2002. Rule 7 of the Jewellery (Collection

of Duty) Rules, 2016 requires a jewellery manufacturer to maintain this record separately for sale of

manufactured articles and trading articles separately.

The record so maintained for manufactured stock should give the details of articles manufactured or

received from job worker’s premises or centrally registered premises or braches of such centrally

registered premises, details of such stock sold for first time for home consumption and for export. The

record shall be maintained on weight and cartages basis.

44. I am a manufacturer of jewellery and also engaged in the trading of jewellery. I do not have the

practice of separately storing or tracking of my physical stock of manufactured articles and traded

stock. Excise duty is required to be paid only on stock manufactured by me. Taking this into

consideration, am I required to physically tracing this stock for this purpose? Is there alternative option

available?

As stated excise duty is applicable on the manufactured jewellery but not on sales made out of trading

stock. Therefore, storing or tracking of physical stock of manufactured stock and trading stock is

required for proper compliance with Central Excise requirements. However, vide Rule 12 of the

Jewellery (Collection of Duty) Rules, 2016 provides for stock option scheme. Under this option, it is

sufficient to maintain record of total quantity of manufactured stock and trading stock received during

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the return period. This record is required to be maintained separately for silver studded articles, gold or

platinum articles studded with diamonds and other gold or platinum articles. The articles sold during

the return period are deemed to have been made in the following manner.

a. Out of opening stock of manufactured goods of a particular month/quarter

b. Out of opening stock of traded goods of a particular month/quarter

c. Out of quantity of stock manufactured during the month/quarter

d. Out of quantity of stock purchased during the month/quarter

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. This time given to exercise this option for FY

2016-17 is too short, just four days after all the notifications and rules are notified. Therefore, the said

option appears to be otiose practically otiose for FY 2016-17. (In view of this reason, no further

emphasis is laid on practical aspects of this scheme)

Disclaimer: The above FAQs are designed only for edifying the readers on the basics of excise duty

applicability and the compliance to be undertaken on the basis of recent compliance and procedural

mechanism notified by the Central Government. The views expressed therein are on the basis of specified

facts and assumptions. The information given above is not intended for any decision making. Neither the

paper writers nor M/s SBS AND COMPANY LLP, Chartered Accountants shall take any responsibility for

any decision taken on the basis of above information. It is advisable to consult a qualified professional

before taking any decision on any of the above discussed subject matters.

For further queries, you may drop a mail to harsha@sbsandco.com or manindar@sbsandco.com or

reach us @ 95-81-00-03-27 or 97-00-73-46-09.