Rudrapur, nestled in the northern hilly state of Uttarakhand, will lose its status of gold refining hub and the reason is the Goods and Services Tax (GST).
With the implementation of the GST, all state levies like sales tax and excise got subsumed under the tax regime. To keep the promise of area-specific tax exemptions, the central government issued a notification that it will refund its share of taxes as per GST rate to units where area specific exemptions were given earlier. However, this refund will be a value addition after taking into account input credit. In case of bullion refining, this benefit is negligible and several units become unviable.
There are around 26 bullion refineries in Rudrapur in Uttarakhand. Last year, out of 300 tons of dore refined, two thirds was refined by these units, according to an industrial estimate.
Industrial units set up in several north Indian and North-East states like J&K, Uttarakhand, Himachal Pradesh, Sikkim etc were enjoying tax holidays especially for state level sales tax or VAT and central excise duty. These benefits were offered to attract industries there. However, in Uttarakhand, some 26 bullion or dore gold refineries were set up, which were getting 0.75 per cent tax benefit in the earlier tax regime. This was attractive enough to set up refining units there. These units import dore at New Delhi airport and move that to Uttrakhand and send back refined gold to its consuming centres. Industrial units were still able to pay more premiums to gold mines in western Africa and South America from where they were procuring dore (unrefined gold).
Commerce ministry issued a notification dated 5th October, which says central government will refund units in such excise free zones on value addition. This will be counted on GST paid after taking input tax credit. Since based on revenue sharing formula between centre and states, the centre will refund 58 per cent of its share of CGST, which is half of total GST. However, in case of gold refining, value addition is negligible in per cent terms and refund amount may not be even Rs 500 per tons.
“Now it is time for state government to notify refund of their part of taxes in line with central government’s announcement. Otherwise, Uttarakhand and other such area based refineries will become unviable and they have to shift the units elsewhere or close down business,” said Rajesh Mehta, executive chairman of Rajesh Exports, who has 150 tons capacity bullion refinery in Uttarakhand. Rajesh Exports was planning to merge this refinery with Valcambi, world’s largest refinery it acquired a few years ago. The merger would have helped Rajesh Exports refinery to attempt to get LBMA accreditation. Now, “we will review our plan if state doesn’t come up with a refund notification.”
Another refiner, however, went ahead and said that “these benefits were offered by the government based on which we set up units and invested money. Withdrawing benefits midway will be illegal and can be challenged in the court”.
In India, there are total 36 refineries of which 27 are in excise free areas and all of them will be impacted. Several smaller units have closed business. Even bigger players like Rajesh Exports are not doing much refining there. Sudheesh Nmbiath, lead analyst, GFMS TR said, “eventually these units will have to shift to areas located near to consuming centres or airports with more number of international flights from Latin America.”
In either of the scenario where units in these areas close operation or shifts elsewhere, Uttarakhand will lose the status of gold refining hub. In fact, the new regime has given, “level playing field to domestic refineries who will be able to compete with refineries set up in places like Uttarakhand,” said Haresh Acharya, secretary, the Bullion Federation. 11 Uttarakhand refineries are member of the federation.
After several months, dore import and refining in domestic tariff area has begun since last one fortnight. Dore imports have also begun, according to domestic refining industry official.