Large scale round tripping in gems and jewellery: CAG asks for a detailed investigation by tax authorities

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Large scale round tripping in gems and jewellery: CAG asks for a detailed investigation by tax authorities
  1. The Customs Receipt Audit unit of the Comptroller and Auditor General of India (CAG) as well as the Directorate of Revenue Intelligence had pointed out irregularities including large scale round tripping of gold jewellery and exports of machine made crude to artificially increase the turnover to take status certificate and to enhance credit limits and financing from banks.
  1. Audit observed that, shockingly, India’s import of pearls during 2013-14 to 2017-18 was *3-10 times more than the average annual value of global pearl production*, implying that a large portion of the turnover was fictitious and on account of round tripping of funds and over invoicing. The imports of pearls primarily being made from UAE, Hong Kong and Thailand, whose contribution in global pearl production was negligible.
  1. Audit also observed that, in seven out of 84 scrutiny cases that Income Tax Department allowed aggregate deductions of Rs 115.45 crore under section 10AA against total export turnover of Rs 5,654.39 crore even though a major part of export proceeds (ranging from 40-100% of the total export turnover) amounting to Rs 3,878.95 crore was outstanding for more than six months.
  1. So the CAG has asked the CBDT to consider specifying a time limit for remittance of export proceeds by special economic zone (SEZ) Units for claiming deduction under section 10AA.
  1. CAG also recommended the CBDT to consider selecting cases with significantly high imports and exports with negligible value addition as one of the criteria for detailed scrutiny as it observed from sampled cases checked in audit that the assessments were completed based on disclosures in the Tax Audit Reports and submission made by the assessee.

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