The rapidly growing domestic branded jewellery has received a body blow with the re-imposition of the excise duty.
The finance minister in his budget speech on Monday proposed imposition of 1 per cent excise duty on all branded jewellery and branded articles of precious metals.
Experts believe the speed of customers' conversion towards branded jewellery from unbranded ones will be affected badly.
Traders caution that branded jewellery customers may start opting for substitutes as high prices of previous metals and stones have already made buying any luxury items unaffordable for most of the middle class.
"The levy is unlikely to accrue any remarkable fund for the government. Hence, the government must withdraw it immediately it," said Mehul Choksi, chairman of Gitanjali Gems Ltd, the Rs 6,500 crore (Rs 65 billion) Mumbai-based jewellery house with over 20 renowned brands under it.
Choksi sees no reason behind the levying of the duty when the jewellery is manufactured under special economic zone (SEZ) and enjoys all duty sops. The duty was withdrawn two years ago.
However, the government has reduced excise duty on serially numbered gold bars, other than tola bars, made in the factories from the initial stage of concentrated ore, from Rs 280 per 10 gram to Rs 200 per 10 grams.
Concessional excise duty rate of Rs 200 per 10 grams was extended to serially numbered gold bars manufactured by refining of gold dore bar also.
Similarly, the government also imposed excise duty of Rs 300 per 10 gram on serially numbered gold bars, other than tola bars, manufactured during the process of copper smelting.
Also, the excise duty of Rs 1,500 per kg was levied on silver manufacture during gold refining starting from ore/concentrate stage or from gold dore bar or during the process of copper smelting.
Also, exemption from basic customs duty was provided on the value of gold and silver contained in the copper concentrate.
The minister has also prescribed an import duty of "nil" basic customs duty, countervailing duty of Rs 140 per 10 grams and "nil" SAD for gold dore bars of up to 80 per cent of gold purity imported for refining and manufacturing serially numbered gold bars in India.
"The re-introduction of the 1 per cent excise duty on branded jewellery is a retrograde step for the industry. We don't understand the rationale behind this step," said Vinod Hayagriv, chairman, all India Gems and Jewellery Trade Federation (GJF).
Five years ago, GJF had made representations to the government and subsequently the excise duty was withdrawn two years ago.
The industry is disappointed and burdened enormously. It believes that while they are working towards ethical, transparent trade practices, these levies and back door licence raj measures will create hardship, litigation and encourage corruption.
"Clearly what the finance minister says on the floor of the House is different from what the excise department will interpret this to be. All jewellery with a mark, whether a house mark or trade mark or brand mark, will be construed as branded and each jeweller will need to fight the battles in court.
The gems and jewellery industry is not an excise duty leviable industry. Hence this is an ill-advised move and GJF strongly advices the roll back of this untenable levy on branded or unbranded jewellery," he said.
Director of RiddiSiddhi Bullions Ltd , Prithviraj Kothari, however, believes the Budget was on expected lines.
"The minister has not touched any duties on gold and silver. The other reason duty on gold and silver has remained unchanged since the prices of bullion have been on all time high. With high inflation, the purchasing power of people towards gold and silver have declined considerably.
The imports have also seen a lower side with high prices. On the other hand the interest rates have skyrocketed. Overall the budget is not very impressive for the bullion sector."