Many a times gold jewellers receive consideration for supply of gold & making charges together. The issue faced by tax payers is on applicability of VAT legislation on making charges.
1. What is the applicability of VAT legislation on gold & gold items procured?
Tax registrant supplying gold items shall not impose VAT on supply if following conditions are satisfied & the recipient shall be liable to pay VAT on reverse charge basis.
- The recipient is registered for VAT
- The supplier obtains a written declaration from the recipient confirming the following:
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- The procured gold items will be used to produce or manufacture gold items or re-sell gold items
- The recipient is registered on the date of supply
- The recipient shall account for the VAT on gold items procured by him
2. What is the applicability of VAT legislation on gold & gold items procured along with making charges?
The applicability will depend on whether the supplier considers it as a single composite supply of a gold item or multiple supplies consisting of both goods and services.
a) Single composite supply
If the supplier charges a single price for the gold including the making charges it will be considered as a single composite supply if the following conditions are met:
- If the supply consists of a principal component i.e. gold and making service.
- The price of gold item & making charges are inseparable.
- The gold & making charges supplied by the same supplier.
If these conditions are met the supply of gold including making charges would constitute to be a single composite supply & reverse charge can be applied.
In this case, both the supplier & recipient are required to retain sufficient supporting evidence including a valid tax invoice stating that reverse charge mechanism was applied.
b) Multiple supplies
If the supplier charges separately for the gold items and making charges it refers to multiple supplies. In this case, the
Jun 20, 2022 
VAT
