In the case of gold (metal) loan, whether the supply of gold (metal) to the jeweller will be deemed to take place at the time of delivery of gold (metal) or at the time when the price of gold (metal) is fixed by the jeweller?
The Gold (Metal) Loan Scheme approved by the Reserve Bank of India is a means of financing. The Banks deliver gold (metal) to the jewellers who appropriate and use the same in the course of their business. The gold (metal) is seldom returned and the jeweller fixes the price of gold (metal) within the stipulated period of 180 to 270 days.
Considering the nature of transaction, the supply of gold (metal) will take place on the date of delivery of gold (metal) to the jeweller. The Banks should raise the invoice at the time of delivery of gold (metal) in terms of section 12 of the CGST Act, 2017. Since the price of gold (metal) is not fixed, banks may issue an invoice wherein the value of the supply may be indicated on the basis of the metal rate in the international or domestic market.
As and when the price is finally fixed by the jeweller, the Bank should issue debit or credit notes for the difference in the price as per the original invoice and the price finally fixed, along with applicable GST.
Whether tax is payable on interest charged by the Banks on the outstanding amount of gold (metal) loan?
The Gold (Metal) Loan Scheme is a means of financing. The jewellers can purchase gold (metal) from the Banks on outright basis on payment of the price. The gold (metal) loan only provides an option to the jeweller to avail a loan and pay for gold (metal) at a future date.
For this facility, the jeweller pays interest to the Bank. The grant of loan and levy of interest is dependent on the purchase of gold, and therefore, part of the same transaction or facility;
therefore the interest, which is the consideration, will not be exempt as per provisions of section 15(2)(d) of the CGST Act, 2017.
Q 59 and 60 of GST FAQs on Financial Services Sector published by CBIC