GJEPC Welcomes GST Council’s Decision Harmonising GST rates for Import of Rough Diamonds

The GJEPC has welcomed the decision of the GST Council to harmonise rates for import of rough diamonds across all HS Codes, thus reducing the GST on the industrial and unsorted diamonds category from 3% to 0.25%. This change was announced after the 21st meeting of the GST Council held on Sept 9, 2017, along with certain other changes in the rate structure of various items, including some others also related to the gem and jewellery industry.

It may be recalled that the Council has made persistent efforts to get the rates for rough diamonds harmonised across all categories. It had pointed out that the earlier discrepancy, where some rough was attracting 3% and some was being charged 0.25% had made import of diamond parcels susceptible to diverse treatment by customs department, thus hampering the trade.

In addition to the change with regard to rough diamonds, the GST Council has also announced clear GST rates for Plain Mother of Pearls at 3% and for articles with it at 12% and for worked Coral at 5% and Articles of Coral at 12%. This is a welcome step which will be beneficial to colour gem stone manufacturers and jewellers, Council stated.

Praveenshankar Pandya, Chairman GJEPC, said, “The harmonised rates of GST (for rough diamonds) was very essential for the ease of doing business and will support the diamond trade to import the goods in respective category without any fear of imposing of higher rate of GST by the department. The reduction in duty of Coral and Articles of Coral is a welcome step which will be beneficial to colour gem stone industry. The industry was facing challenges while importing mother of pearl and now GST rates announced will allow jewellers a hassle free import of the product.” 

The GJEPC Chairman also welcomed the formation of the special committee to look after GST rules vis-a-vis exports under the Chairmanship of Revenue Secretary and expressed the hope that the Committee would positively consider two further recommendations that the Council has put forward – related to inter-group transactions and to import of gold.

With regard to the transactions taking place within the trade/industry for polished diamonds and coloured gemstones, Council has pointed out that these goods normally pass through several hands before being exported from India. Currently, GST is imposed at every transaction or dealing, which is leading to bottlenecks and blockage of capital as the tax has to be paid upfront and refunds claimed after actual export. This is affecting lots of small units which do not have required cash flow nor can avail of loans from banks to support the immediate payment of GST, thus reducing manufacturing which is evident from the decline exports over the last two months, GJEPC said.

Pointing out that no other competing diamond processing country has this system of levying GST and claiming refund after exports, Council has suggested that as in other countries with similar diamond dispensation like Belgium or Israel, transactions taking place between a diamond dealer, manufacturer and exporter are controlled and monitored by allotting a special GST number, with all transactions taking place inside the group with such GST number being exempted from payment, while transactions outside this circle could be taxed at normal rates. 

It added that the trade is not claiming exemption, but recommending a system prevailing internationally for such export-oriented transactions. It requested for a similar Group Scheme in India as around 94% of diamonds processed here are for export.

A similar scheme should be put in place for the coloured gem stone industry too, the Council has said.

With regard to the availability of gold for exporters of jewellery, Council said this has become a major issue due to imposition of 3% GST at import level. As nominated agencies are providing gold to the trade with nominal commission and premium based on their expense or risk perception, post GST, it has become difficult for them to continue with this business, or they have been charging substantially higher premiums based on higher risk.

For exporters, this means huge blockage of capital due to the refund system in GST and long gestation period till fixing of price and recovery of GST against exports. There is also no assurance of refund of the same amount of GST as paid by nominated agency as GST at import level.

Council has therefore recommended introduction of a system where bank guarantee will be accepted against GST obligation at import level from exporters for supply of duty free gold by nominated agencies. This will arrest the fall in exports of gold jewellery, which has been to the level of 30% after introduction of GST at import level, the GJEPC said.