GJEPC urges Finance Ministry for diamond trade facilitation in India

A delegation under the leadership of Vipul Shah, Chairman GJEPC met Saurabhbhai Patel, Hon. Minister of Finance, Government of Gujarat to represent the Diamond trade issue on October 8, 2014. The delegation consisted of Chandrakant Sanghavi, Regional Chairman, Gujarat; Ajesh Mehta, Co-Convenor, Diamond Panel Committee of GJEPC; Aagam Sanghavi, Chairman, IDI; Sabyasachi Ray, Executive Director, GJEPC; Jilpa Sheth, Asst. Director, GJEPC and Pranay Narvekar, Pharos Beam Consultants.

Vipul Shah informed the minister that to turn India into a trading hub of rough diamonds and mitigate the income tax assessment issues faced by the industry it is necessary that India promulgate turnover taxation regime coupled with consignment import of rough diamonds as it is prevalent in countries like Belgium and Israel. Further, the delegation mentioned that the introduction of Presumptive Taxation System will simplify the tax computing mechanism and avoid litigations resulting in collection of higher quantum of income tax. Sabyasachi Ray referred to the recommendation made on this respect by the Sivaraman Committee based on which the Govt. had introduced a benign taxation system with an impractical net profit rate because of which it was not successful. He emphasized that the introduction of Turnover based taxation system would help in attracting the foreign diamond mining companies to trade the rough diamonds in India and make it the diamond trading hub. Members requested for introduction of Turnover Tax with net profit calculated for computation of prevalent income tax @ 2 per cent of turnover for trading activity and 3 per cent of turnover for manufacturing activity.

Further, Chandrakant Sanghavi mentioned that coupled with that the consignment import of rough diamonds in diamond bourses in India should be introduced. Though the Foreign Trade Policy allows the same but due to the absence of Custom Notification, free import and sale of rough diamond on consignment basis is not possible in India due to which the diamond manufacturers of Gujarat have to travel to Dubai, Belgium or Israel to purchase raw material and which incurs huge extra costs. Members urged Saurabhbhai for declaring designated areas in the diamond bourses as special notified zone where import and trading of rough diamonds will be allowed thus helping the mining companies to bring their rough supplies directly for trading in India.

Besides, Ajesh Mehta raised his concern with respect to availability of finance to the industry from banks as ECGC is unable to guarantee the export credit extended to the industry by the PSU banks based on such internal directives. Due to that PSU banks have started asking for extra collaterals for additional lines which will be highly detrimental for growth of exports from the sector. ECGC in turn is constrained by their sectorial limits and capital ratios. Vipul Shah mentioned that the Industry is caught between bank’s unwillingness to extend credit without ECGC guarantee and ECGC’s unwillingness to extend limits of the existing guarantees and requested to take up with the central Government for their intervention on the matter to break the deadlock in the interest of manufacturers of diamonds from Gujarat.

Aagam Sanghavi apprised the Minister of receipt of summons and showcauses by trade members for payment of import duties and service tax by DRI as well as DGCEI for import of diamond planning and mapping machines from Israel. The issue at stake is taxability of the software that has been downloaded for such machines. The Customs authorities have alleged that the price of such software paid by members should be part of the assessable value for computation of import duty for such machines which were not paid. On the other hand central excise/service tax officers are of the view that the provision of software is an independent service and hence service tax has to be paid on such downloading of software. As the demand from