Shubhadeep Choudhury
New Delhi, August 10
Auditors, probing to check loopholes and ambiguity in the law and procedure governing gems and jewellery sector, were stunned by their discovery that there is no standardised procedure to evaluate a piece of diamond.
“The valuation of a diamond is a very subjective matter, and it becomes very difficult and complex due to its dependency on four Cs: cut, clarity, colour and caratage”, bewildered auditors noted in “Report No. 6 of 2022- Performance Audit on Assessment of Assessees of Gems and Jewellery Sector, Union Government Department of Revenue- Direct Taxes”, tabled in Parliament on Monday.
Only carat-wise quantitative details of diamonds (rough, rejected and polished) is taken into account for assessment purpose. In the absence of grade-wise details (cut, clarity and colour), it was not clear how the tax authorities were satisfying itself that the value of diamonds declared by an “assessee” was correct, the report by the Comptroller and Auditor General (CAG) said.
The auditors, however, admit that “gradations of diamonds or precious gems based on difference in cut, clarity, colour and carat makes it extremely difficult to have a standard valuation methodology”.
While carat defines the weight of a diamond, Gemmological Institute of America grades colour of diamonds alphabetically from D (totally colourless) to Z (yellow). Last but not the least is a good cut which gives a diamond its brilliance, the report said.
Customs Department told the auditors that valuation of cut and polished diamonds is done on the basis of Rapaport Diamond Report or according to the past record of import/export of similar goods.
In case of disputes between the customs and the importer/exporter regarding valuation, the matter is referred to experts from an authorised panel of experts (except in case of any specific intelligence of any collusion between the panel and the importer or exporter).
No specific guidelines/SOP for valuation of commodities of gems and jewellery sector has been ever issued, auditors were told by the Customs Department.
Describing over-valuation of imports related to gems and jewellery sector as “an area of concern”, the report cited a Rs 2,000 crore scam in diamond imports that came to light in 2018.
While probing the scam, investigators found that in some cases, value of imported diamond was reassessed as Rs 1.2 crore as against the declared value of Rs 156 crore. Similarly, in some other cases, consignments were valued at Rs 2.62 crore, as against declared value of Rs 62.66 crore.
The CAG has asked the government to draw an SOP and standard guidelines. The Central Board of Direct Taxes has promised to have the issue examined.