VAT worries still persist in diamond sector

The uncertainty over whether the diamond cutting and polishing sector would be brought under the service tax net, has been amplified, with a senior official of the Union commerce ministry refusing to say a clear yes or no.

Addressing a gathering of representatives of the diamond industry in Surat on Tuesday, M S Rao, joint secretary, Union commerce ministry, said, "Legal experts have given varying interpretations of the service tax provisions. While some have said that service tax would be levied on diamond cutting and polishing, some others are saying no."

"At present, we ourselves are not in a position to clearly state whether the diamond industry has been covered under the service tax net or not. It would take some more days before an exact picture regarding this emerges, and hence we would have to wait till then to say whether the sector has been covered under service tax or not," he said.

"At the same time, I can assure the industry that if service tax is imposed on diamond cutting and polishing, we will ensure that the tax payment system is simplified, so that the industry does not have to face any procedural hassles or harassment," he added.

In response to a query regarding imposition of two per cent excise duty on branded jewellery, Rao said, "We realise that the industry is not very happy with the move. The branded jewellery manufacturers have told us that they do not mind paying the duty, but are worried about inspector raj. We are not in a position to say anything about the issue, but we would communicate the feelings of the gem and jewellery industry to the government."

This uncertainty has not gone down too well with the industry.

Chandrakant Sanghvi, a leading diamond businessman, and also the regional convenor of Gem & Jewellery Export Promotion Council, said, "The move to impose service tax would mean death-knell for the diamond cutting and polishing sector."

There are around 10,000 tiny and small diamond units in Gujarat, which would be the worst affected, many of which would close down on account of the move."

"The government has to realise that this is a sensitive issue, and make an announcement at the earliest, that no service tax is imposed on the industry," he added.

The two per cent excise duty on branded jewellery has also not amused the industry.

"The branded jewellery industry is very young in India, and needs to be nourished. The jewellery industry is expected to increase exports and generate more employment opportunities. The industry is capable of this, but levying one tax after the another would only have adverse affect on the industry," said Chuni Gajera, of Cygnus brand of jewellery.

"The branded jewellery market in India is estimated at around Rs 10,000 crore, and hence it would not be a major earner for the government. It will, however, lead to increased harassment of the jewellery manufacturers, and hence the government should reconsider its decision," he added.

M S Rao, accompanied by P K Mahapatra, director, union commerce ministry, were in Surat to attend the board meeting of Indian Diamond Institute. After meeting the representatives of gem & jewellery industry, the officials also visited some diamond units.