Gold Scrap Purchase from Unregistered Suppliers: Reverse Charge Section 9(4)

A regional jewellery chain’s controller reviews the trial balance for the quarter ending 30 June 2026. The gold inventory line shows an addition of ₹18.4 crore of scrap gold acquired from walk-in customers across 47 stores in Karnataka, Tamil Nadu, and Kerala. The controller’s first check is a search of the GST cash ledger for reverse-charge output tax discharge — there is none. No RCM output tax entries against the scrap inward supply, no matching ITC claims, no self-invoices in the RCM inward-supply series. The store systems have been posting walk-in scrap purchases directly to inventory at the counter-day gold rate, treating the transaction as if it were an unregistered-supplier flow that carries no GST obligation. Under Section 9(3) read with Notification 07/2018-Central Tax (Rate), the unrecognised RCM output tax at 3% on ₹18.4 crore is ₹55.2 lakh for the quarter — matched by an equal ITC claim the retailer has also missed. The Section 74 exposure on the un-discharged RCM output, assessable for five years back, compounds into a material year-end assessment risk. This is gold scrap purchase unregistered supplier RCM 9(4) at production scale, and the reconciliation discipline that resolves it is what separates a clean GSTR-3B filing from a departmental notice.

Quick reference

The reconciliation in one paragraph

An unregistered walk-in customer selling old gold to a registered jeweller creates an inward supply on which the jeweller pays GST under reverse charge. The general Section 9(4) — which historically imposed RCM on all inward supplies from unregistered persons — was narrowed by the CGST (Amendment) Act 2018 and no longer applies to jewellers in this scenario. The operative provision is Section 9(3) read with Notification 07/2018-Central Tax (Rate) dated 25 January 2018, which notified the purchase of second-hand gold, silver, and other precious articles by a registered dealer from an unregistered person as an RCM category at 3% CGST + SGST combined on the scrap value. The jeweller self-generates a tax invoice under Section 31(3)(f) read with Rule 46, records the RCM output tax in GSTR-3B Table 3.1(d), and claims the offsetting ITC in the same return period under Section 16 Table 4A(3). Where the transaction consideration crosses ₹2 lakh, Section 269ST and Section 269SS force settlement through the banking channel and Rule 114B compels PAN capture. The reconciliation exists to prove — to a departmental auditor five years later — that every walk-in scrap event was correctly classified as scrap purchase versus old-gold exchange, that the RCM output was discharged in the return period, that the ITC was claimed symmetrically, and that above-threshold transactions moved through banking channels with PAN captured.

What the walk-in scrap purchase looks like in India — operational walkthrough

Walk into a large Kalyan Jewellers or Malabar Gold & Diamonds branch in a tier-1 metro on a weekday afternoon. A customer approaches the buyback counter with a set of old gold pieces — a broken chain, two damaged bangles, and a pair of earrings without stones. The counter attendant weighs each piece separately on a certified digital scale calibrated to the third decimal in grams, and performs a purity assay using a portable XRF (X-ray fluorescence) analyser or an acid test on a touchstone with reference needles. The purity comes back as 91.6% (22-carat) for the chain and bangles and 75.0% (18-carat) for the earrings. Aggregate weight after removing solder and non-gold components: 34.8 grams at 22-carat and 8.2 grams at 18-carat. The day’s inbound gold rate at the store is ₹6,850 per gram for 22-carat scrap (lower than the outbound retail rate by the wastage-and-refining allowance) and ₹5,610 per gram for 18-carat scrap.

The buyback value works out to (34.8 × ₹6,850) + (8.2 × ₹5,610) = ₹2,38,380 + ₹46,002 = ₹2,84,382. The customer holds no GST registration — a retail individual selling used personal jewellery. The transaction crosses the ₹2 lakh threshold, so the counter workflow flags three parallel requirements. First, the customer’s PAN must be captured under Rule 114B — the attendant scans the PAN card into the store system. Second, settlement must move through the banking channel under Section 269ST — the customer receives the payment via RTGS or IMPS to a bank account in the customer’s name (matched to the PAN and captured Aadhaar), not cash. Third, the store system generates a self-invoice under Section 31(3)(f) in the RCM inward-supply series with the customer as the unregistered supplier, HSN 7112 for waste and scrap of precious metal, the taxable value of ₹2,84,382, the tax rate of 3% under Notification 07/2018-CTR, CGST of ₹4,266, and SGST of ₹4,266.

The same pattern repeats across every mid-market and premium jewellery retailer in India — Tanishq, Kalyan Jewellers, Malabar Gold & Diamonds, Senco Gold, Joyalukkas, Reliance Jewels, and the regional and family-run stores that dominate tier-2 and tier-3 markets. What varies is store-system maturity. A well-configured ERP at a national chain generates the self-invoice automatically the moment the counter attendant confirms the buyback, routes the settlement through a pre-configured RTGS batch, and posts the RCM output and ITC entries symmetrically into the GST module. A store on an older billing package may post the buyback directly to gold inventory without an RCM entry — the single largest reconciliation exposure in the category.

The regulatory overlay — Section 9(3), Notification 07/2018-CTR, and the 2018 Section 9(4) narrowing

The reason Section 9(3) matters — and not Section 9(4) — is the CGST (Amendment) Act 2018 rewrote Section 9(4) to apply only to “specified class of registered persons” receiving supplies from unregistered persons, and required a notification to be in force listing those classes. The current notification limits Section 9(4) to real-estate promoters procuring specified inputs (cement, capital goods for construction) below a threshold percentage. Jewellers are not a specified class under the current Section 9(4) notification. Retailers who read Section 9(4) as a general “RCM on unregistered inward supply” provision and assume its dilution means no RCM on walk-in scrap are wrong — the applicable provision is Section 9(3), which operates independently of registration status and depends only on the government notifying the category of goods or services.

Notification 07/2018-Central Tax (Rate), dated 25 January 2018, is that notification for old gold, silver, and other precious articles. It brought purchase of second-hand precious metal articles from an unregistered person by a registered dealer into RCM at 3% CGST + SGST combined on the value of the scrap. The rate matches the outbound rate on finished jewellery under HSN 7113, so the ITC-and-output-tax cycle is symmetric — the jeweller pays 3% on the inward supply and, when the same metal is remanufactured and sold as finished jewellery, collects 3% on the outward supply. The economic cost of the RCM cycle on the scrap line is zero (the ITC offsets the RCM output tax on the same return); the reconciliation exists for audit-trail integrity and for defensibility under the five-year Section 74 limitation window.

The Section 31(3)(f) self-invoice is the source document. Rule 46 prescribes the fields — invoice serial, date, supplier name and address (walk-in customer’s name and government-ID identity), HSN 7112, taxable value, tax rate, tax amount, and the “tax payable on reverse charge” declaration. Retailers maintain a distinct invoice series for RCM inward supplies (typically prefixed RCM/SI/ or similar) to keep the buyback flow segregated from B2C sales in the audit trail. The self-invoice serial must run without gaps for the financial year — the same discipline that applies to outbound tax invoices under Rule 46 applies to inbound self-invoices, and a gap in the serial without a documented cancellation invites the audit question. See the old-gold exchange reconciliation article for the parallel discipline on the exchange path, where no RCM applies but Section 15(3) discount treatment governs the reconciliation instead.

A worked example — walk-in scrap gold buyback of ₹1.2 lakh

An illustrative walk-in customer approaches a Bangalore branch of a mid-market national jewellery chain (modelled loosely on the retail buyback format used by Kalyan Jewellers, Malabar Gold & Diamonds, and Senco Gold — figures are representative of the operating pattern, not actual retailer data). The customer sells a single 22-carat gold chain with an assay weight of 17.5 grams and a purity confirmed at 91.6%.

Illustrative — public disclosures do not reveal individual store buyback detail; the figures below are representative of the operating pattern, not actual retailer data. Cross-verify against your own POS export or GSTR-3B Table 3.1(d) before action.

The buyback breakdown reads as follows.

The transaction consideration of ₹1,20,000 is below the ₹2 lakh Section 269ST threshold, so cash settlement is permissible. However, the operating discipline at a national chain is typically to route all buybacks — regardless of value — through the banking channel to avoid the cash-management overhead at the counter and to build a defensible audit trail. The customer’s PAN is captured as a discretionary control, not as a Rule 114B mandate.

The self-invoice under Section 31(3)(f) is generated in the store system with the RCM inward-supply series. The store’s ERP posts the following ledger entries symmetrically: (a) Gold Inventory debit ₹1,19,875 · Scrap Purchase Supplier Account credit ₹1,19,875 (representing the amount payable to the walk-in customer, settled either in cash or by RTGS on the day); (b) Input CGST-RCM Receivable debit ₹1,798 · CGST Payable RCM credit ₹1,798; (c) Input SGST-RCM Receivable debit ₹1,798 · SGST Payable RCM credit ₹1,798. The RCM output tax of ₹3,596 discharges through the electronic cash ledger in the month’s GSTR-3B filing (Table 3.1(d)), and the offsetting ITC of ₹3,596 lands in the electronic credit ledger via Table 4A(3) in the same return.

Now scale this to a chain doing 47 stores across three states, each store receiving an average of 12 buyback events per week at an average consideration of ₹85,000, or roughly 24,440 buyback events per quarter with aggregate consideration of ₹20.8 crore. The RCM output tax on the buyback book is ₹62.4 lakh for the quarter, matched by ₹62.4 lakh of ITC. Under-recording of the RCM entries — as happens when a store system posts the scrap purchase directly to inventory without invoking the RCM workflow — leaves the ₹62.4 lakh as unrecognised output tax liability that a departmental audit surfaces at year 3 or year 5, at which point interest under Section 50 (currently 18% p.a. on the delayed tax) plus 100% penalty under Section 74 apply on the entire under-declared amount.

The mixed-rate jewellery invoice reconciliation article covers the outbound-invoice side of the same category, and the karigar workshop labour TDS article covers the labour-payment reconciliation that runs alongside the scrap flow when the scrap is remanufactured into finished jewellery. The old-gold exchange reconciliation article covers the other buyback path — exchange for new jewellery — where Section 15(3) discount treatment replaces the RCM path. For sibling operational reconciliations in the same cluster, the BIS hallmarking cost accounting article, the wastage and manufacturing loss reconciliation article, the EMI scheme revenue recognition article, the damaged-jewellery return credit-note article, and the deposit-gold-scheme customer liability article each pick up a specific reconciliation surface in the retail jewellery operating model.

Common reconciliation breakages

• Scrap purchase posted directly to inventory without RCM invoice. The single largest exposure — store systems that do not invoke the RCM workflow at the counter treat the buyback as an unregistered-supplier flow with no GST obligation. The un-discharged RCM output tax accumulates over the five-year Section 74 window and surfaces at departmental audit with interest and penalty on the aggregate.

• RCM output discharged but ITC not claimed. Retailers who record the RCM output tax in GSTR-3B Table 3.1(d) but omit the matching Table 4A(3) ITC claim carry a working-capital drag equal to the tax amount for as long as the omission persists. The two entries must be symmetric in the same return period.

• Scrap purchase misclassified as old-gold exchange. Where the customer sells scrap and separately buys new jewellery on a different day or a different bill, the transactions are two independent supplies — the scrap is a buyback (RCM path) and the new purchase is a forward supply (3% + 5% path). Retailers who net the two by treating the scrap as a discount on the new-jewellery invoice mis-classify the RCM path away and under-recover ITC.

• Above-₹2-lakh scrap settled in cash. The Section 269ST / Section 269SS 100% penalty applies to the cash receipt or payment, not just to a portion above the threshold. A ₹4.2 lakh buyback settled in cash exposes the retailer to a ₹4.2 lakh penalty; splitting into two ₹1.99 lakh tranches on consecutive days does not cure the exposure because the aggregate-in-a-day and single-event limbs of Section 269ST catch the split.

• PAN not captured on above-₹2-lakh scrap. Rule 114B requires PAN quotation on jewellery transactions above ₹2 lakh. Where the walk-in customer lacks PAN, Form 61 declaration must be filed. Retailers who neither capture PAN nor file Form 61 attract a penalty under Section 272B (₹10,000 per default).

How a reconciliation platform handles this

Terra Insight’s reconciliation platform (TransactIG) treats every walk-in gold-inbound event as a source event routed through a two-path classifier — scrap purchase versus old-gold exchange — before any downstream posting is initiated. The self-invoice register is reconciled to the RCM output tax discharge on the electronic cash ledger and to the ITC claim on the electronic credit ledger in the same return period, with per-event tie-back to the counter workflow. Above-₹2-lakh transactions surface as banking-channel-mandatory exceptions before payment initiation, and PAN capture is enforced at the counter with Form 61 fallback for the unregistered-customer edge case. Retailers running the platform typically move from a first-pass reconciliation match rate of 51% to 88% on the RCM inward-supply side, with the residual routed to controller review before the return is filed rather than surfacing as an assessment exposure at year-end. The commercial pillar for the category is jewellery reconciliation software India, and the broader reconciliation software India hub anchors the cross-category architecture.

The five FAQs below address the operational questions Indian jewellery retailers ask most often when implementing structured RCM reconciliation on the walk-in scrap-buyback flow.

Terra Insight Editorial Team Reconciliation Infrastructure

Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →

Published 1 July 2026

Domain expertise

TDS Reconciliation GST Input Credit Platform Settlements NACH Batch Matching Bank Reconciliation Form 26AS Matching ERP Integrations Enterprise Finance Ops

Reviewed by

NK

Navin Krishnan

Managing Director & Founder — Terra Insight

Ex Amazon India · Intuit QuickBooks · Tata nexarc

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