Edited version of private advice

Authorisation Number: 1052153405348

Date of advice: 9 November 2023

Ruling

Subject: GST and importation of jewellery

Question 1

Is the importation of XX jewellery and YY jewellery into Australia by you subject to GST?

Answer

Yes, the importation of XX jewellery and YY jewellery into Australia by you is subject to GST as it is a taxable importation pursuant to section 13-5 of the GST Act.

Question 2

If the answer to question 1 is yes, then does Division 117 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) apply to ensure that GST is limited to being calculated on the value of the repair or renovation?

Answer

No, Division 117 of the GST Act does not apply to the importation of XX jewellery and YY jewellery.

Question 3

Is the importation of the ZZ jewellery by you subject to GST?

Answer

Yes, the importation of the ZZ jewellery is subject to GST as it is a taxable importation pursuant to section 13-5 of the GST Act.

Question 4

If the answer to question 3 is yes, then does Division 117 of the GST Act apply to ensure that GST is limited to the value of the repair or renovation?

Answer

No, Division 117 of the GST Act does not apply to the importation of the ZZ jewellery.

Question 5

Is there any other concessional treatment that may apply to upon entry of XX jewellery, YY jewellery or ZZ jewellery?

Answer

No, there is no other concessional treatment that may apply upon entry of XX jewellery, YY jewellery or ZZ jewellery.

Relevant facts and circumstances

You are registered for GST. You operate a retail and wholesale jewellery business. You purchase gold, silver, and platinum (Precious Metal) for wholesale and retail purposes from Australia and overseas. You also purchase Gold jewellery, silver jewellery and Platinum jewellery for wholesale and retail purposes from Australia and overseas.

You import jewellery under the following broader arrangements:

You purchase Precious Metal in Australia and send it overseas for the purposes of it being manufactured into Jewellery and then returned to Australia in the form of jewellery (XX jewellery).

You purchase Precious Metal overseas for the purposes of it being turned into Jewellery and then brought to Australia in the form of jewellery (YY jewellery).

The ZZ jewellery are made by you sending jewellery from Australia to overseas manufacturers who melt the jewellery either in whole or in part and reproduce the jewellery with a modified design before importing into Australia in the form of jewellery.

You are the importer of the above jewellery.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 13-5

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

A New Tax System (Goods and Services Tax) Act 1999 section 13-15

A New Tax System (Goods and Services Tax) Act 1999 section 13-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-385

A New Tax System (Goods and Services Tax) Act 1999 section 40-100

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

A New Tax System (Goods and Services Tax) Act 1999 section 42-10

A New Tax System (Goods and Services Tax) Act 1999 section 117

Reasons for decisions

Questions

(1)          Is the importation of XX and YY jewellery into Australia by (you) subject to GST?

(2)          If the answer to question 1 is yes, then does Division 117 of the GST Act apply to ensure that GST is limited to being calculated on the value of the repair or renovation?

(3)          Is the importation of the ZZ jewellery subject to GST?

(4)          If the answer to question 3 is yes, then does Division 117 of the GST Act apply to ensure that GST is limited to the value of the repair or renovation?

(5)          Is there any other concessional treatment that may apply upon entry of XX jewellery, YY jewellery or ZZ jewellery?

Answers

(1)          Yes, the importation of XX jewellery and YY jewellery into Australia by (you) is subject to GST as it is a taxable importation pursuant to section 13-5 of the GST Act

(2)          No, Division 117 of the GST Act does not apply to the importation of XX jewellery and YY jewellery.

(3)          Yes, the importation of ZZ jewellery is subject to GST as it is a taxable importation pursuant to section 13-5 of the GST Act.

(4)          No, Division 117 of the GST Act does not apply to the importation of ZZ jewellery.

(5)          No, there is no other concessional treatment that may apply upon entry of XX jewellery, YY jewellery or ZZ jewellery.

Your contentions:

You contend that following entry into Australia, XX jewellery and YY jewellery is sometimes returned to Australia in an unaltered condition pursuant to section 42-10 of the GST Act. Similarly, following entry into Australia, the ZZ jewellery is sometimes returned to Australia in an unaltered condition pursuant to section 42-10 of the GST Act. At all relevant times, ZZ Jewellery is essentially the same product, just returned in a different form.

You contend that Division 117 of the GST Act 'Valuation of taxable importations of goods that were exported for repair or renovation' will apply to XX jewellery, YY jewellery and ZZ jewellery to render the value of taxable importation to be lower than the entire value of the goods. You made reference to GSTR 2003/15, at paragraphs 274-278 and contend that XX jewellery, YY jewellery and ZZ jewellery should properly be considered as undergoing a process of repair or renovation as contemplated by Division 117 of the GST Act. In the alternate, XX jewellery, YY jewellery and the ZZ jewellery are manufactured as part of a batch process as contemplated by Division 117 of the GST Act. You discussed the concept of 'renovation' and 'substantial renovation' in GSTR 2003/3 'When is a sale of real property a sale of new residential premises?' and stated that it is similar to the processes undertaking in work required to produce:

i.              XX jewellery and YY jewellery, starting with purchased precious metals to producing jewellery, and

ii.             ZZ jewellery starting with the jewellery you sent from Australia which overseas manufacturers melt either in whole or in part and reproduce jewellery with a modified design.

Hence you conclude that section 117-5 of the GST Act applies to XX jewellery, YY jewellery and the ZZ jewellery.

You also contend the following:

The GST Act provides that Goods can be sent overseas and then reimported. Specifically, if goods are returned to Australia in an unaltered condition, it will be a non-taxable importation under section 42-10 of the GST Act. The goods which are the subject of this PBR are sometimes returned in an altered condition and sometimes returned in an unaltered condition. If repair work has been undertaken, the general rule in section 13-20 of the GST Act (which is about how much GST is payable on taxable importations) is that GST would be calculated on the whole value of the goods. This would include the value on which GST may have been previously paid, that is, there would be an effective double taxing.

Detailed reasoning

Questions 1 and 3

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies and taxable importations.

Subsection 13-5(1) of theGST Act states:

You make a taxable importation if:

(a)           goods are imported; and

(b)           you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

Section 195-1 of the GST Act states: 'goods means any form of tangible personal property'.

We consider that XX jewellery, YY jewellery and ZZ jewellery (Products) are tangible personal property therefore they come within the definition of goods for GST purposes. You acquire the Products from the manufacturers/suppliers overseas and import them into Australia. You are the entity that enters the Products for home consumption. Hence you meet the requirement of subsection 13-5(1) of the GST Act.

Is the importation of the products a non-taxable importation?

The third aspect of section 13-5 of the GST Act which needs to be considered is whether the importation of the Products is a non-taxable importation.

Section 195-1 of the GST Act provides that non-taxable importation has the meaning given by section 13-10 and Division 42 of the GST Act.

Section 13-10 of the GST Act states:

An importation is a non-taxable importation if:

(a)          it is a non-taxable importation under Part 3-2; or

(b)          it would have been a supply that was GST-free or input taxed if it had been a supply.

Paragraph 13-10(a) of the GST Act: non-taxable importation under Part 3-2

Paragraph 13-10(a) of the GST Act contains Part 3-2 which refers to Division 42 which sets out classes of importations that are non-taxable importations. The Products do not fall within any of the items in Schedule 4 to the Customs Tariff Act 1995 that are specified in section 42-5 in Part 3-2 of the GST Act. These items are listed in Appendix B of Goods and Services Tax Ruling GSTR 2003/15 Goods and services tax: importation of goods into Australia (GSTR 2003/15) which discusses the operation of the provisions in the GST Act which apply to the importation of goods into Australia.

Next we discuss subsection 42-10 (1) of the GST Act, which states:

An importation of goods is a non-taxable importation if:

(a)          the goods were exported from the indirect tax zone and are returned to the indirect tax zone without having been subject to any treatment, industrial processing, repair renovation or any other process since their export; and

(b)          the importer was not entitled to, and did not claim, a payment under Division 168 (about the tourist refund scheme) related to the export of the goods; and

(c)           the importer:

                             i.                is the manufacturer of the goods; or

                            ii.                has previously acquired the goods and the supply by means of which the imported acquired the goods was a taxable supply (or would have been a taxable supply but for section 66-45); or

                           iii.                has previously imported the goods, and the previous importation was a taxable importation in respect of which GST was paid.

Paragraph 42-10(1)(a) of the GST Act: Are the products exported from the indirect tax zone and returned to the indirect tax zone without having been subject to any treatment, industrial processing, repair, renovation alteration or any other process since their export?

The ATO View

The ATO View about when a supply constitutes the repair, renovation, modification or treatment of goods is contained in GSTR 2005/2.

Please refer to the definition of repair, renovation, modification or treatment of goods in GSTR 2005/2.

GSTR 2005/2:

Paragraphs 1 to 3 state:

1. This Ruling is about the operation of item 6 in the table in subsection 38-185(1) and item 5 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). It explains the requirements for a supply to be GST-free under these items.

2. Item 6 provides for the GST-free supply of goods in the course of such repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia. Item 5 provides for the GST-free supply of services constituting the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia.

3. In particular, this Ruling sets out the Commissioner's views on:

(a)           when a supply of goods is in the course of repairing renovating, modifying or treating other goods;

(b)           when a supply of services is constituted by the repair, renovation, modification or treatment of other goods;

(c)           when goods are from outside Australia and have a destination outside Australia; and

(d)           the types of documents which demonstrate that the requirements for a GST-free supply of goods or services are met.

Paragraphs 33 to 45 state:

The meaning of 'repairing, renovating, modifying or treating'

33. Both items 5 and 6 discussed in this Ruling require there to be a repair, renovation, modification or treatment. The terms 'repair', 'renovation', 'modification' and 'treatment', and their derivatives, are not defined in the GST Act and therefore take their ordinary meaning.

34. The ordinary meaning of 'repair' is 'to restore to a good or sound condition after decay or damage; mend'. Repairing includes replacing defective or worn parts or re-attaching parts that have become detached.

35. The ordinary meaning of 'renovate' is 'to make new or as if new again; restore to good condition; repair'. Renovation changes the character or enhances efficiency of function, while a repair merely restores the character or efficiency of function.

36. The ordinary meaning of 'modify' is 'to change somewhat the form or qualities of; alter somewhat'.

37. The ordinary meaning of 'treat' is 'to subject to some agent or action in order to bring about a particular result, for example, to treat a substance with an acid'. Processes such as cleaning, sterilising, waterproofing or rust proofing goods are examples of treating goods.

38. The use of the word 'whose' in the items 5 and 6, where the legislation refers to 'goods from outside Australia whose destination is outside Australia' [emphasis added], indicates that the goods departing Australia should be essentially the same goods as the goods that are brought into Australia. In the Commissioner's view, this excludes the process of manufacture from the provision.

39. The ordinary meaning of manufacture is 'the making of goods or wares by manual labour or machinery, especially on a large scale; the making of anything'.

40. Manufacture commonly results in a change in the identity of goods. Their essential character is altered in such a way that they can no longer be considered to be the same goods. The original goods being components, ingredients, raw materials or similar, are subsumed into new goods with their own identity.

41. It follows that a process which may appear to be, for example, a treatment, or renovation, is not covered by the items 5 and 6 if the process amounts to the manufacture of new goods. In this context, the terms 'treating' and 'renovating' are limited to processes of the same kind or nature as repairing and modifying, neither of which contemplates the creation of completely new or different goods.

42. In Subdivision 38-E, repair, renovation, modification or treatment is a process applied to existing goods which may involve some change in the nature, form or condition of the existing goods, the substance of which remains unchanged. That is, the essential or fundamental character of the goods is the same. The other goods retain their own identity.

43. If item 5 in subsection 38-190(1) and item 6 in subsection 38-185(1) do not apply because new goods are created, the requirements of another item may be met. For example, a supplier contracted to manufacture new goods using components provided by the recipient, may make a supply of goods to the recipient. This supply is GST-free if the supplier exports the goods and the other requirements of item 1 in subsection 38-185(1) are met. Alternatively, a supply of services made to a non-resident who is not registered or required to be registered, may be GST-free if the requirements of item 2 in subsection 38-190(1) are met.

Example 5 - other goods different to goods that are exported

44. A foreign chemical company sends chemicals in a powder form to an Australian resident pharmaceutical manufacturer. The Australian company uses the chemical powder along with other locally produced active ingredients, additives and bonding agents to produce a headache medication in a tablet form. The tablets are sent in bulk to the foreign company which is then charged for the processing service.

45. The powder has been subsumed into new or different goods (the tablets). The processing that the chemical undergoes is more complex than mere 'treatment' or 'treating' in the context in which those expressions are used in items 5 and 6, as it changes the fundamental nature of the goods, causing them to lose their identity. The headache tablets sent from Australia are different goods to the chemical powders imported.

Products' information:

You purchase Precious Metal in Australia and send it overseas for the purposes of it being manufactured into jewellery and then imported into Australia in the form of jewellery (XX jewellery)

You purchase Precious Metal overseas for the purposes of it being turned into jewellery and then imported into Australia in the form of jewellery (YY jewellery)

The ZZ jewellery are made by you sending jewellery from Australia to overseas manufacturers who melt the jewellery either in whole or in part and reproduce the jewellery with a modified design before importing into Australia in the form of jewellery.

Application of the law to the facts:

XX jewellery and YY jewellery are made from either Precious Metal acquired in Australia or from overseas, and at the point of importation into Australia, they take the form of jewellery, not precious metal. Hence we do not consider that they fit into any of the following definitions as follows:

              i.                'repair' is 'to restore to a good or sound condition after decay or damage; mend'. Repairing includes replacing defective or worn parts or re-attaching parts which have become detached

             ii.                'renovate' is 'to make new or as if new again; restore to good condition; repair'. Renovation changes the character or enhances efficiency of function, while a repair merely restores the character or efficiency of function.

           iii.                'modify' is 'to change somewhat the form or qualities of; alter somewhat'

            iv.                'treat' is 'to subject to some agent or action in order to bring about a particular result, for example, to treat a substance with an acid. Processes such as cleaning, sterilising, waterproofing or rust proofing goods are examples of treating goods.

The Precious Metal (whether obtained from Australia or from overseas, then made into jewellery and imported into Australia), have not been repaired, renovated or modified or treated as defined in GSTR 2005/2. When the Precious Metal is made into jewellery, it fits into the meaning of manufacture, which is 'the making of goods or wares by manual labour or machinery, especially on a large scale; the making of anything'. The manufacturing process results in a change in the identity of the goods. The essential character of the Precious Metal is altered in such a way that they can no longer be considered to be the same goods. The original goods, which is Precious Metal, are considered components, ingredients, or raw materials, which are subsumed into new goods (XX Jewellery and YY Jewellery) with their own identity.

The ZZ jewellery are made by overseas manufacturers who melt the jewellery you export from Australia, either in whole or in part and reproduce the jewellery with a modified design before you import the jewellery into Australia. When the overseas manufacturers melt the jewellery you send from Australia, and use the resulting raw material obtained to manufacture jewellery with a different/modified design, the original jewellery have been changed to metal and are considered components, ingredients, or raw materials, which are subsumed into new goods (the ZZ jewellery) with their own identity. The manufacturing process results in a change in the identity of goods. The process is not a renovation of the jewellery you exported from Australia, the process is the creation of new goods/jewellery.

Paragraph 41 of GSTR 2005/2 states that 'In this context, the terms 'treating' and 'renovating' are limited to processes of the same kind or nature as repairing and modifying, neither of which contemplates the creation of completely new or different goods.' Hence, in relation to ZZ jewellery, although you export and import the goods in the form of jewellery, the jewellery you export from Australia are different goods to the jewellery you import.

In summary, we do not consider that XX jewellery, YY jewellery and ZZ jewellery are exported from the indirect tax zone and returned to the indirect tax zone without having been subject to any treatment, industrial processing, repair, renovation, alteration or any other process since their export, and they do not satisfy paragraph 42-10(1)(a) of the GST Act. We do not need to discuss paragraphs 42-10(1)(b) and (c) of the GST Act.

Subsection 42-10(2) refers to the goods acquired/exported/imported before 1 July 2000. It is not relevant to your situation.

Paragraph 13-10(b) of the GST Act: would the importation of the jewellery have been a GST-free or input taxed supply if it had been a supply?

The supply of precious metal (as defined in the GST Act) is either GST-free or input taxed (depending on the situation). Therefore, if an entity imports a good and a hypothetical sale of the good to the importer would have been a GST-free or input taxed supply of precious metal, the importation of the good is a non-taxable importation. Gold, silver or platinum products can potentially meet the definition of precious metal in the GST Act. However, jewellery does not meet the definition of precious metal in the GST Act even if it contains gold, silver or platinum. For example, jewellery is not in the form of bars, coins or wafers, which is one of the requirements for a good to be precious metal as defined in the GST Act, and jewellery would not come in these forms. For more information on the definition of precious metal in the GST Act, see Goods and Services Tax Ruling GSTR 2003/10. Goods and Services Tax: What is 'precious metal' for the purposes of GST?.

The importation of XX jewellery, YY jewellery and ZZ jewellery would not have been a GST-free or input taxed supply had it been a supply, as such, the importation of the jewellery are not non-taxable importations under paragraph 13-10(b) of the GST Act.

In conclusion, section 13-10 of the GST Act is not satisfied hence the importations of the Products are taxable importations.

Questions 2 and 4

If the importations of the products are taxable importations, does Division 117 of the GST Act apply to limit the GST to being calculated on the value of the repair or renovation, and not the entire value of the goods?

Division 117 of the GST Act states:

117-1 What this Division is about

Taxable importations of goods that were exported, and then re-imported, are in some cases given a lower value than would otherwise apply. The GST then applies only to the lower value, and not to the entire value, of the goods.

117-5 Valuation of taxable importations of goods that were exported for repair or renovation

(1)           The value of a taxable importation of goods that were exported from Australia for repair or renovation, or that are part of a *batch repair process, is the sum of:

(a)           the cost, as determined by the *Comptroller-General of Customs, of materials, labour and other charges involved in the repair or renovation; and

(b)           the amount paid or payable:

                                             i.                for the *international transport of the goods to their *place of consignment in the indirect tax zone; and

                                            ii.                to insure the goods for that transport; to the extent that the amount is not already included under paragraph (a); and

(c)           the amount paid or payable for a supply to which item 5A in the table in subsection 38-355(1) applies, to the extent that the amount:

                                             i.                is not an amount, the payment of which (or the discharging of a liability to make a payment of which) because of Division 81 or regulations made under that Division, is not the provision of *consideration; and

                                            ii.                is not already included under paragraph (a) or (b); and (d) any customs duty payable in respect of the importation of the goods.

(1A)        If an amount to be taken into account under paragraph (1)(b) or (ba) is not an amount in Australian currency, the amount so taken into account is the equivalent in Australian currency of that amount, ascertained in the way provided in section 161J of the Customs Act 1901...

(2)           Goods are part of a batch repair process if:

(a)           they are part of a process to replace goods that were exported from Australia for repair or renovation; and

(b)           they are not new or upgraded versions of the exported goods; and

(c)           they are not replacing goods that have reached the end of their effective operational life.

(3)           This section has effect despite subsection 13-20(2) (which is about the value of taxable importations).

You referred to GSTR 2003/15 'Goods and services tax: importation of goods into Australia', paragraphs 274-278. These paragraphs are about Division 117 of the GST Act, which provides a special rule for the valuation of the taxable importation to render the value of taxable importation to be lower than the entire value of the goods. This special rule covers the re-importation of goods which have been exported to be repaired or renovated, goods which are part of a batch repair process.

Paragraph 117-5(2) of the GST Act states:

Goods are part of a batch repair process if they are:

•                    part of a process to replace goods that were exported from Australia for repair and renovation; and

•                    not new or upgraded versions of the exported goods; and

•                    not replacing goods that have reached the end of their effective operational life.

As discussed above, in relation to ZZ jewellery, the goods have not been exported to be repaired or renovated, but instead goods are exported to be made into new goods/jewellery, which are later imported into Australia. The XX jewellery are different goods to the raw materials that were exported to make this jewellery. The YY jewellery is made from overseas sourced raw materials. The XX jewellery, YY jewellery and ZZ jewellery have to satisfy all three above conditions of Paragraph 117-5(2) of the GST Act to be considered as part of a batch repair process, but they fail the first condition. Hence Division 117 of the GST Act does not apply.

We do not consider that XX jewellery, YY jewellery and ZZ jewellery meet the requirements of subsection 117-5(1) of the GST Act because they were not exported from Australia for repair or renovation and then re-imported. Neither are they part of a batch repair process. Therefore, concessional GST treatment under Division 117 of the GST Act does not apply to the products you import.

Question 5

No concessional GST treatment applies to your importation of XX jewellery, YY jewellery or ZZ jewellery under the circumstances in question.