New Gold Export Rule Can Be Misused

Has an amended government rule unwittingly opened the room for misuse by a few jewellery exporters? Some in bullion and jewellery trade think so.

Sections within the trade have said that a recent commerce ministry note extending the export obligation to 120 days by jewellery exporters who directly import gold bars duty free in the domestic tariff area (DTA) could be misused by a few. This has drawn sharp retorts from a star export house and a nodal export body .

Earlier, jewellery exporters in DTA who imported bullion duty free under advance authorisation were obliged to export jewellery and other value-added items manufactured from the bars in 90 days. Those importing gold or silver bars for domestic sale are obliged to pay a 10% import duty plus a 1% value added tax on sale at the state level.

A gold refiner and a jeweller claimed that the extension could increase the room for “misuse".“Let's assume export house X imports gold duty free under the scheme, makes jewellery in a week or two and sells the same in the local market inclusive of 10% import duty and 1% VAT," said the refiner. “He thus imports duty free and gets an 11% profit on sale of jewellery . The funds can be deployed to earn interest till the company has to meet its export obligation. At such time, it buys the gold domestically by paying 11% tax and exports it by the mandated time. Interest earned on the funds in the interim is the profit." However, Rajesh Mehta, chairman of Rajesh ExportsBSE -0.15 %, said not everybody could be painted with the same brush.

“There are some black sheep everywhere but that does not mean everybody is errant. At times, the quantum of orders is huge, meriting more time for manufacturing. Besides, before this extension the government mandated a 180-day export obligation for direct importers, which it successively reduced to 120 and then to 90 days,“ said Mehta.

K Srinivasan, convenor of the gold panel at Gem & Jewellery Export Promotion Council (GJEPC), the nodal export body for gems and jewellery sector, said the council had “not asked for extending the period".

“It (the extension for exporters who directly import gold) has come as a surprise to us because the GJEPC has not asked for this,“ Srinivasan told ET. “However, it's quite likely that certain export houses with big orders need more time to meet their export obligations. I don't think there is any question of misuse."