The All India Gems and Jewellery Federation (GJF), the national body of the jewelry trade in India, today met with representatives from the Ministry of Finance to seek modifications to the country's Direct Taxes Code.
India's domestic gems and jewelry industry provides employment to more than 10,000 (one crore) jewelers, sales persons, designers, goldsmiths, artisans and craftsmen from the smallest towns and villages across the country.
Speaking at the press conference held after the meeting, Ashok Minawala, the GJF's chairman, said, “GJF strongly objects to three key issues of the Direct Taxes Code: 1) the search and seizure provisions, 2) the tax on gross assets and 3) the TDS [Tax Deducted at Source] on all payments.”
The seizure of entire stock-in-trades when any discrepancy is discovered during the related raids is not acceptable to the federation. GJF also objects to the 2 percent tax on gross assets since the industry operates based on small margins with high inventory levels. In this case, a company earning a 2 percent net profit is required to pay the same tax as a company earning an 8 percent net profit. GJF also objects to the tax deduction of 10 percent on all gold, diamond, jewelry, etc., payments as it would block working capital for the industry, which is facing a major liquidity crunch.
Certain items proposed for the Direct Taxes Codes, such as the search and seizure provisions and the tax on gross assets, penalize the industry, which is already reeling under the effects of the global recession, according to GJF. This critical objection is being filed on behalf of GJF, as well as more than 300,000 manufacturers, wholesalers and retail jewelers in India.
If the suggestions are not considered and the necessary changes are not incorporated into the Direct Taxes Code, the proposed provisions will be highly detrimental to the operations of industry assessees and have the potential to adversely affect their very sustenance.
The seizure of such stock-in-trade products as jewelry, bullion and precious stones would create great difficulties for the assessees as it would result in the cessation of their manufacturing operations, potentially resulting in the breakdown of their entire business. The industry's products depend largely on sales and the seizure of stock-in-trade would also lead to loss of sales for the industry and therefore, for the country.
Cause: In financing working capital requirements, there is a heavy dependence on banks and financial institutions and jewelers have to hypothecate their inventory, plant, machinery, etc., to secure such financing. Even loan collateral is provided in the form of property. Furthermore, raw materials are procured from suppliers on a credit basis.
Rule: It is important to note that said provision of Section 139(2)(f) of the Direct Taxes Code contradicts the corresponding provision under the IT Act, i.e., Section 132, which excludes from the powers of the Authorized Officer the power to seize bullion, jewelry or other valuable articles held as stock-in-trades by a business.
The seizure of stock-in-trades would cause jewelers to default in their repayment commitments to suppliers, banks and financial institutions. This would deter suppliers from dealing with jewelers and the banks and financial institutions from extending credit facilities to them.
“Such a classification merely on the basis that the stock-in-trade of the industry is of high value as compared to its other assets does not warrant subjecting the industry to stringent and drastic seizure provisions and such classification will not stand the test of reasonability in relation to the object of the legislation,” the Gem and Jewellery Export Promotion Council (GJEPC) stated.
The GJEPC also said that the sector has been witnessing a slow revival, with exports registering a 2 percent increase in September for the first time in 11 months. Exports in September yielded $2.56 billion, according to GJEPC data. The $27 billion gems and jewelry sector has been witnessing an upturn since March and it expects exports to increase during Christmas.
Any provision in the Direct Taxes Code seeking to extend the powers of the authorized officer in respect to search and seizure operations, however — specifically to the seizure of stock-in-trades of bullion, precious or semiprecious stones, jewelry, etc. — would contradict the Foreign Trade Policy and the recommendations of the National Task Force on Direct Taxes. The proposed provision under the Direct Taxes Code impacts both GJI assessees, as well as their reasons for seeking relief.
Source : diamonds.net