This public clarification replaces the original public clarification VATP029.

Purpose : Amendment to tax treatment of Making service of Gold & Diamonds.

Amendment in Cabinet Decision no. 25

As per Article 1 of Cabinet Decision no. 25, the original definition of “GOODS” consists of 

• gold, 
• diamonds and 
• any product where the principal component is of gold or diamonds.

However, the above definition has been amended and replaced for a limited period from 1^st June, 2018 to 31^st December, 2022. As per this new definition, “GOODS” consists of

• gold,
• diamonds and
• any product where the principal component is of gold or diamond – which may include Making Services directly connected to the supply of these goods.

As a result, this temporary change in definition would allow for the application of the reverse charge mechanism (RCM) on the making services that are directly in connection with the supply of gold.

Scenario from 1^st June, 2018 to 31^ST December, 2022

• The reverse charge mechanism (RCM) may be applied to Making Services that are supplied with and are directly in connection with the Gold Items as a consequence of the amendment to the definition of “Goods” in Cabinet Decision No. 25. 

That means, the supply of Gold Items subject to the reverse charge mechanism may also include Making Services directly in connection with the supply of the Gold Items.

• Further, the clarification also states that where the taxable person applied the provisions of Cabinet Decision No. 25, during the period from 1 June 2018 to 31 December 2022, on Gold Items only without the Making Services, there is no requirement to make changes to their previous VAT Return filings.
• Also, where the taxable person applied the provisions of Cabinet Decision No. 25, during the period from 1 June 2018 to 31 December 2022, on Gold Items as well as the Making Services that are directly connected to the supply of such Gold Items, there is no requirement to make changes to their previous VAT Return filings.
• Moreover, the taxable person who corrected their VAT return filings by submitting a voluntary disclosure to the FTA as per Public Clarification VATP029 on Gold-Making Charge, in order to apply VAT on the Making Services where these were separately listed on the invoice from the Gold Items, and they had previously applied reverse charge mechanism to such services, is not required to file an additional voluntary disclosure to reverse the voluntary disclosure submitted.

Scenario from 1^st January, 2023 Onwards

• The reverse charge mechanism will no longer be applicable to Making Services separately listed from the Gold Item on the invoice after 31^ST December, 2022.
• Any supplier of Gold Items and Making Services has to consider whether the supply constitutes a single composite supply of a Gold Item or multiple supplies consisting of both the Gold Item and Making services. 

How to find Single Composite supply or Multiple supplies

Single composite supply : 

• If the supplier charges a single price for the Gold Item, including the making charge, the supply will be regarded as a single composite supply of Gold Items. 
• If the conditions are met, the supply of the Gold Items (including the making service) would constitute a single composite supply which may qualify for reverse charging if all of the requirements of Cabinet Decision No. 25 are met. 
• In such a case, both the supplier and recipient are required to retain sufficient supporting evidence, including a valid tax invoice issued by the supplier reflecting one single consideration for the Gold Item (including the making service), and stating that the reverse charge mechanism was applied.

Multiple Supplies : 

• If the supplier charges separately for the Gold Items and for the making service, or where the price of these components are separately reflected, the supplier is regarded as making multiple supplies. 
• In these cases, the supplier is required to treat each component as a separate supply and apply the correct tax treatment to each separate component. 
• In instances of multiple supplies, only the VAT related to the Gold Items may be accounted for under the RCM, provided all the requirements of Cabinet Decision No. 25 are met. 
• The supplier is required to account for VAT on this making service if the supplier is a taxable person. 
• The supplier will be required to issue valid tax invoices in respect of the taxable supply of making services. 
• The tax invoice should reflect the date of issue as well as the original date of supply.

Input Tax Recovery 

If the recipient is a registered, the input tax may be recovered in accordance with the general input tax recovery rules.

Correction of errors, if previously done 

Where a supplier applied incorrect VAT treatment other than what has been clarified above, the supplier shall submit a voluntary disclosure.

CA Aakriti Chaturvedi