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WANING GLITTER: A woman holds gold bangles at a jewellery shop in Kolkata in this October 14, 2009, file photo.Reuters file

The Goods and Services Tax (GST) could block about three-fourths of jewellers' working capital and impact their profitability due to an inverted duty structure, said a report in financial daily Business Standard on Sunday.

Simply put, jewellers will collect less tax from customers than the tax they would have paid for buying gold and converting it into jewellery. This is because of a 3 per cent tax on gold and jewellery but 18 per cent tax on making charges, a Business Standard report said.

"Nearly 95 per cent of jewellers do not have their own manufacturing units and, therefore, make their jewellery through job workers/manufacturers. It clearly means that the input GST rate on making charges will be 18 per cent but the output GST rate of gold jewellery is fixed at 3 per cent. Jewellers have to file for refund of excess GST paid," the daily said, quoting Surendra Mehta, National Secretary of apex bullion dealers body, the India Bullion and Jewellers Association (IBJA).

Data compiled by the apex bullion dealers body, the IBJA, showed that the GST structure will block 87 per cent working capital to the industry.

The daily said that considering jewellery manufacturing is a labour intensive industry, blockage of working capital would be a big blow for the industry.

"Jewellery manufacturers would be paralysed with the blockage of funds. We met government officials who heard our problems and found merit in our claim. The government would have to refund excess tax collected," Nitin Khandelwal, chairman, All India Gems and Jewellery Trade Federation (GJF), told Business Standard.

He said that the industry has urged the government to keep GST rate on making charges for jewellery at 'zero' . "We, however, won't mind paying a maximum 3 per cent of GST on making charges, similar to that in gold, which would help us avoid complications in compliance," the daily quoted Khandelwal as saying.

While the government is yet to clarify the applicable rate of GST on making charges, the industry has presumed that the 18 per cent rate announced on entire job work facility will be applicable for jewellery making as well.