Mere deposit of diamonds with safe vaults does not constitute supply but its conversion into e-units or e-units to diamonds is supply liable to GST: AAR
Facts of the case: M/s Rajarathnam’s Jewels (“the Applicant”) is a partnership firm engaged in the retail business of gold and is desirous of entering into a derivative contract in diamonds through Indian Commodity Exchange Limited (ICEX).
Issues involved: Applicant has sought advance ruling in respect of following questions:
- Whether mere deposits of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) would be treated as supply for levy of GST?
- Whether conversion of EVR into e-Units would be treated as supply liable to GST?
- Whether e-Units would be treated as securities and thereby transaction in e-units would remain out of scope of the levy under GST?
- Whether the derivative contracts in e-Units and settlement thereof would be treated as transaction in securities and thereby would remain out of the scope of the levy under GST?
- Whether conversion of e-Units into diamonds would be treated as supply liable to GST?
Ruling: The Hon’ble AAR, Karnataka vide Advance Ruling No. KAR ADRG 16/2018 dated July 27, 2018 gave ruling as under:
- Mere deposits of diamond with safe vaults acknowledged by EVR does not constitute supply of diamonds for levy of GST as there is only a transfer of possession of diamonds and safe vaults only hold diamonds as bailee to the depositor. Further there is no consideration involved;
- Conversion of EVR representing the diamonds held in the vaults to e-Units would constitute a supply of diamonds liable to tax under GST. The EVRs being document to the title of goods represent the diamonds in possession of the bailee and any transfer of EVRs amounts to transfer of title to the goods i.e. diamonds;
- The e-Units are securities under clause (101) of Section 2 of the CGST Act, 2017 and hence transactions in e-Units would remain out of the scope levy of tax under GST;
- The derivative contracts in e-Units and settlement thereof would be treated as transactions in securities in case it involves only e-Units without any involvement of physical diamonds and thereby would remain out of the scope of levy under GST;
- Conversion of e-Units into diamonds would constitute a supply of diamond liable to tax under GST.