Until now, the diamond capitals of Mumbai and Surat were considered the ‘prime’ centers for illegal activities. Interestingly, Southern India, especially Chennai, the capital of Tamil Nadu, has turned into a hotbed of the diamond undervaluation scam.
The modus operandi is simple: polished diamonds are sent to the jewellery companies in South India where they are studded in the gold jewellery and are kept loose for export. Here, the exporters of jewellery and diamonds in South India would assign the natural diamonds in the Harmonised System (HS) code of the lab-grown diamonds for under-invoicing of the diamonds and that such jewellery or loose diamonds are exported to Dubai.
The jewellery articles studded with natural diamonds with HS code of lab-grown diamonds are shipped to the parties in their syndication in Dubai. The Dubai-based buyers transfer money of the jewellery and diamonds received as per the prices of the natural diamonds through Hawala in Mumbai or South India.
Experts in the diamond industry believe that the diamantaires have turned to the exporters in South India for carrying out the undervaluation scam. For exporting diamonds out of India, the exporters are required to comply with the Kimberley Process Certification Scheme (KPCS) and have to register themselves with the Gems and Jewellery Export Promotion Council (GJEPC) for the same to get the export code. Many diamantaires in Surat and Mumbai have started exporting diamonds through the big exporters in South India to avoid the paperwork and registration process.
Recently, the Directorate of Revenue Intelligence (DRI) and the Customs department had carried out a joint operation on a diamond company located at the Surat Special Economic Zone (SurSEZ) and involved in the undervaluation scam. The customs department seized about 60,000 carats of polished diamonds from the company owned by one Meet Kachadiya at SurSEZ. The natural diamonds were exported with the lab-grown diamonds HS code, thereby undervaluing the goods and the money was transferred from Dubai and other foreign countries through Hawala. Sources said the Customs department had sent the diamond seized from Meet Kachadiya’s unit for laboratory testing. The valuation of the diamonds seized by the Customs department is yet to be done, but it is believed that the value of the diamonds runs into crores of rupees.
In July-2019, the Directorate General of Foreign Trade (DGFT) had assigned HS Code of 7102 for synthetic or lab-grown diamonds, while the natural diamonds have the HS code of 7102. Before 2019, the trade for natural and lab-grown diamonds was done through the HS code of natural diamonds.
Late former Finance Minister, Arun Jaitely had proposed separate HS codes for the lab-grown diamonds and natural diamonds during the budget of 2016-17, following the diamond industry’s representation complaining of rampant mixing of synthetic diamonds with the natural diamonds.
A diamond industry analyst asking anonymity told Hello Entrepreneurs, “DRI and Customs department have tightened the noose around the exporters and units operating in SEZs to curb the undervaluation scam. However, the diamantaires have shifted to South India. The undervaluation of diamonds is carried out in the studded jewellery, which is exported to Dubai and other foreign countries. The jewellery articles are exported under the lab-grown diamond HS code”
He added, “If suppose a one-carat natural diamond is priced at Rs 1 lakh, the lab-grown diamonds would cost somewhere around 30,000. However, the difference amount of Rs 70,000 on the diamond is transferred through Hawala. The cash received through Hawala payment is utilized by the small-time diamantaires to purchase rough diamonds.”
By Melvyn Thomas
