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Tax officials raid diamond traders and offices in India


Post Date: 12 Oct 2013    Viewed: 396

The Mumbai and Surat offices of the Income Tax department have been conducting joint raids in diamond firms across both areas, from mid last week. The raids are a follow up regarding several bogus documents recovered from Mumbai's diamond traders.


Incidentally, India's net diamond account from January to August improved to a deficit of $158 million as compared with a deficit of $424.6 million in 2012. Traders said this could be the main cause of the raids.


More than 70 Income Tax officials have carried out searches in the houses and offices of leading diamond traders in Mumbai. In the island city, the raids were carried out at Opera House, Panchratna Building and Prasad Chambers, which is normally a beehive of activity for the diamond trade. Work at the diamond bourse in Mumbai came to a standstill on Monday, with Income Tax officials going through the books and documents.


"Ironically, just last week, Mumbai diamond traders had welcomed the Gujarat chief minister Narendra Modi and had weighed him in silver, when he had visited the city to inaugurate the Bombay Bullion Association's office," said Manish Kedia, diamond trader.


Close on the heels of the Bhartiya Janta Party (BJP) Prime Ministerial candidate Modi's remark that diamond merchants in Mumbai run the risk of receiving notices from the Income Tax department for hosting him, especially as he was being weighed in silver bars, tax officials have swooped down and carried out search operations at the offices of several diamond merchants in the city, Kedia added.


The issue has taken on political overtones. Reacting to the raids, Surat -Navsari BJP Member of Parliament C R Paatil has written to President Pranab Mukherjee, Prime Minister Manmohan Singh and Union Finance Minister P Chidambaram, terming the raids a harassment.


Raids were carried out on five diamond trading firms in Surat and one courier (angadia) firm, which has offices in Mumbai and Gujarat. The agency had information that several diamond traders and manufacturers were involved in illegal activities like preparing fake documents pertaining to imports and exports of rough and polished diamonds which they were selling to local small traders to avail of tax benefits.


The raids, which started on a limited scale in Mumbai and Kolkata, expanded to Jaipur and Surat by the weekend, primarily covering intermediaries, including courier service providers and diamond dealers.

Loans against cash given by many of these companies are also being scrutinised by the tax department.


India's polished diamond exports jumped 35.9% year on year to $1.92 billion in August, according to provisional data provided by the Gem and Jewellery Export Promotion Council. Polished diamond exports rose 23.3% to 3.77 million carats by volume, while polished imports jumped 45% to $524.8 million, leaving net exports 33.3% higher at $1.39 billion.


Rough diamond imports have surged 32.5% year on year to $681.6 million, while rough exports have fallen 16.1% to $135 million, leaving net imports 50.8% higher in August at $546.6 million. India's net diamond account, reflecting the difference between net exports and net imports, improved to $851.4 million from $686.7 million one year ago.


"The industry is going through a major liquidity crisis. Traders associated with the Gems and Jewellery Export Promotion Council have already reduced their factory output over some months due to the high rough prices, volatility in the rupee and a general slowdown in demand from overseas,'' said Haresh Soni, chairman of All India Gems and Jewellery Trade Federation.


He added that in the diamond trading business, bogus bills were generated to gain access to loans and, to an extent, evade taxes, ``All of that is in the past though. The tax officials are not saying anything much about the current raids,'' he said.


However, Surat's C R Paati said the raids were being conducted ``under pressure from the Congress government, with the Income Tax department targeting diamond merchants of Surat. We have written to the President, and if no steps are taken we will take out a rally and agitate outside the tax office,'' he said.


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