Review jewellery incentives to check round-tripping: CAG

CAG also asks dept of commerce to undertake an analysis of important schemes implemented to boost the sector from an economic, trading, and revenue perspective

Government auditor CAG on Friday asked the government to review export incentives to the gems and jewellery sector to safeguard revenues and prevent round-tripping.

The CAG (Comptroller and Auditor General) also asked the department of commerce to undertake an outcome analysis of the important schemes implemented to boost the sector from an economic, trading, and revenue perspective.  All inverted duty structures, transaction costs, related-party transactions, re-export transactions, and facilitation measures need to be carefully reviewed before designing an effective promotional scheme, it said.

CAG asked the Central Board of Excise and Customs (CBEC) to consider rationalising the duty structure so that foreign exchange earning could at least be on a par with duty foregone under the Foreign Trade Policy (FTP).

The sector contributes 15 per cent to the export basket. The major product categories are gold and diamond jewellery.

India's diamond manufacturing sector employs about 10 lakh people across the country.

The CAG report on customs on gold, precious metals and jewellery points at its performance audit has a revenue implication of Rs 1,003.37 crore in addition to systemic issues worth Rs 19,522.67 crore and internal control matters which could not be quantified.

The import of gold, jewellery and related items increased from Rs 3.50 lakh crore in 2010-11 to Rs 3.81 lakh crore in 2014-15. Export of similar goods also increased from Rs 1.98 lakh crore in 2010-11 to Rs 2.53 lakh crore in 2014-15.

"The export growth in 2014-15 was much below the rate of 25 per cent envisaged in the Department of Commerce (DoC) strategy, affecting employment generation and other economic indicators," the report said.

On an average 64 per cent of imported gold jewellery was from Switzerland, UAE and Hong Kong out of the 120 odd source countries. However, the importing countries were not being exported to, except in case of UAE and Hong Kong.

Similarly, 63 per cent exports of jewellery were to UAE and Hong Kong.

CAG further said that no analysis of incremental changes in the transaction cost associated with the sector was measured by DoC. The change in gold price, import regulation, export promotion schemes did not have a material impact on the gold trade.

"The G&J trade related financial outflow continued unabated," the report said.

It also pulled up the DoC saying that FTP 2015-20 did not make any defining provision for the G&J sector despite withdrawal of 20:80 Scheme in 2014 and climb down from target.

CAG further said gaps in the valuation database management and Customs electronic data application allowed gradual increase in trade mis-invoicing over the period leading to foreign exchange/capital outflow.

CBEC, it said added should maintain a robust and updated valuation data for all the tariff lines so that these could be utilised and shared with other concerned departments.

It also made a case that DoC should consider introducing suitable provisions in the SEZ rules, to prescribe a minimum value addition by the SEZ units and for regular stock verification to check diversion into Domestic Tariff Area.

To maintain the consumer and trade confidence in Indian diamond industry, CBEC may consider a clear categorization for man-made diamonds to differentiate from natural diamonds, the report suggested.