Six diamond export firms under probe

Six Mumbai-based diamond exporters with a combined turnover of Rs 8,000-10,000 crore are being investigated for indulging in circular trading to take advantage of the government's "target plus" scheme. The incentive-based scheme aims at rewarding exporters for incremental exports.

The income tax department, the Enforcement Directorate and the department of revenue intelligence are conducting the investigation. These firms are reportedly fronting for a leading export house.

In addition to Mumbai, a company in Bangalore indulging in a similar operation with spurious gold jewellery is also under scrutiny.

A government official told Business Standard that the Mumbai companies were routing cut and polished diamonds between India and Dubai. These firms buy diamonds and undertake operations like sieving and sorting in Mumbai to fulfil the minimum value-addition norms.

Within a few hours, these diamonds are sent to Dubai, where they are displayed on the shelves for a few hours, sold and returned to Mumbai.

Officials said the companies came under the lens of the investigative agencies because of a huge increase in their turnover. "It was also found that there was no change in the caratage of diamonds, despite the reported value-addition," an official said.

The scheme, announced in September 2004, provides credit to exporters as a percentage of growth in their exports over the previous year's mark. The credit is 5 per cent for achieving 20-25 per cent export growth, 10 per cent for achieving growth of 25 per cent or above and 15 per cent for attaining 100 per cent growth.

The government has so far provided credit of around Rs 3,000 crore. The outgo under the scheme would have been much higher if the modus operandi had not been found out.

"Since the scheme has become operational only in respect of targets achieved during April-March 2004-05, no benefits were given for the previous three years," an official said.

The possibility of misuse of the scheme was discussed at the level of the Prime Minister's Office following which a committee was set up to review the scheme last year. With the committee recommending disbanding of the scheme, the government has now taken a decision to drop it from April 1, 2006.

In February this year, the DGFT removed gems and jewellery, diamonds, ores, cereals, sugar, petroleum oil and crude oil from the ambit of the scheme with effect from April 1, 2005. The move is aimed at ensuring that firms under scrutiny cannot avail of any benefit under the scheme.