Lack of SOP to assess diamonds intrigues auditors: The Tribune India
New Delhi, August 10
Auditors, probing for loopholes and ambiguity in the law and procedure governing the gemstone and jewelery industry, were stunned by their discovery that there is no standardized procedure to assess a piece of diamond.
“Diamond valuation is a very subjective matter, and it becomes very difficult and complex due to its reliance on the four Cs: cut, clarity, color and caratage,” baffled listeners noted in “Report No. 6 of 2022 – Performance Audit”. on Assessment of Assesses of Gems and Jewelery Sector, Union Government Department of Revenue- Direct Taxes,” tabled in Parliament on Monday.
Only quantitative details per carat of diamonds (rough, rejected and polished) are taken into account for evaluation purposes. In the absence of grade details (cut, clarity and color), it was unclear how the tax authorities ensured that the value of diamonds declared by an “appraiser” was correct, the Comptroller and Auditor’s report General (CAG) said.
The auditors admit, however, that “the gradings of diamonds or gemstones based on difference in size, clarity, color and carat make it extremely difficult to have a standard grading methodology.”
While the carat defines the weight of a diamond, the Gemmological Institute of America classifies the color of diamonds in alphabetical order from D (totally colorless) to Z (yellow). Last but not least is a good cut that gives a diamond its sparkle, according to the report.
The Customs Department told auditors that valuation of cut and polished diamonds is based on the Rapaport Diamond Report or import/export history of similar goods.
In the event of a dispute between Customs and the importer/exporter regarding valuation, the matter is referred to experts from an approved panel of experts (unless there is specific intelligence of collusion between the panel and the importer or exporter).
No specific guidelines/SOPs for the valuation of gemstone and jewelry sector products have ever been issued, auditors said by the Customs Department.
Describing the overvaluation of imports linked to the gemstone and jewelery sector as “a matter of concern”, the report cites a Rs 2,000 crore scam in diamond imports that came to light in 2018.
Investigating the scam, investigators found that in some cases the value of the imported diamond was revalued at Rs 1.2 crore from the declared value of Rs 156 crore. Similarly, in some other cases, shipments were valued at Rs 2.62 crore, against a declared value of Rs 62.66 crore.
The CAG has asked the government to develop a standard SOP and guidelines. The Central Directorate of Direct Taxes has promised to have the matter examined.