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Govt withdraws duty free gold import for jewellery exporters

Rajesh Bhayani/Mumbai 14 May 18 | 04:46 PM

The government has moved to arrest the misuse of incentives offered on gold jewellery export, with the Director General of Foreign Trade last week issuing a public notice to discontinue duty free import of gold before exports. However, in order to reduce the hardships of small exporters, it has allowed four months for re-exporting gold jewellery.Interestingly, exporters' interests are looked after by the Gem and Jewellery Export Promotion Council, which has not recommended such a move as it is seen as detrimental to small exporters. However the restriction has come a few months after the exposure of a scam in large jewellery houses in February.

Some export houses were said to be misusing the Advance Authorisation scheme for jewellery exports. The scheme allowed exporters to import gold required for their shipments abroad without paying import duty. While this facility of duty free import before export has been withdrawn, exporters have been allowed four months' time to re-export jewelry made from imported gold. In such cases, exporters will have to claim refund of import duty after exporting.

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The refund process will mean the cost of financing exports will increase, thereby reducing incentives. The DGFT has only stated that export obligation period with pre-import condition has been extended to 120 days (earlier 90 days) from the date of clearance of each import consignment by customs authority.

Sources said the discontinuation of the advance authorisation or duty free import facility was being grossly misused by some large players having their refineries to re-export gold with little value addition. They were doing round tripping or importing gold and re-exporting with much less than the mandated value addition either to take advantage of the interest arbitrage or to inflate the balance sheet.

Earlier, DGFT has banned the export of jewellery and medallions with purity of more than 22 carats, but that failed to cap round tripping. GFMS Thomson Reuters estimates that approximately 157 tonnes were used for round-tripping in 2017, up from 125 tonnes in 2016.

However, even four months' export obligation period may also be misused by some, especially when the premium in Indian market increases. According to GFMS data, in 2017, 18.1 tonnes was moved to the domestic market unofficially before re-exporting within the 90 day period. Now the period has been extended to 120 days.

A spokesperson for GJEPC said, "We have not recommended this move to the government. We don't small exporters to suffer  and are in touch with the government for exporter-friendly policies."

In October last year, the government had also cancelled the nominated agency licenses of star export houses. This was done to make gold import only through other nominated agencies. Government had done this to arrest menace of round tripping.

GJEPC has been talking to government and discussing several measures which can be adopted for promoting gold jewellery exports. Council's spokesperson declined to discuss details of what council is representing to the government on this but said that, "many small exporters are in this business and their interest should be taken care of."

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