The Federal Board of Revenue (FBR) has unearthed massive misuse of the 'Entrustment Scheme' by exporters of gold, where huge quantities of gold/jewellery were exported during 2009-10 without fulfilment of conditions of the Import and Export of Gold, Gold Jewellery and Gemstone Order 2001.
Sources told Business Recorder here on Wednesday that all Model Customs Collectorates (MCCs) have started securitising data of importers and exporters of gold under the 'Entrustment Scheme' following detections made by the MCC Rawalpindi. The customs authorities investigated exporters' data due to sudden jump in exports of gold during 2009-10. It was found that the exporters of gold had exported a large number of consignments without importing any gold, which was a requirement under SRO 266(I)/2001. Secondly, customs officials have no powers under the Customs Act, 1969 to take action against the exporters of gold, who deliberately misuse the 'Entrustment Scheme'. In case of a contravention case framed against the gold exporter, the adjudicating authority could only impose penalty of Rs 25000, which is very low as compared to huge export of gold having value in millions of rupees.
All MCCs have started examining the data of exporters of gold as per provisions of the 'Entrustment Scheme' notified through the SRO 266(I)/2001 to check misuse of the facility. It would be confirmed whether the exporters have imported gold equal to the contents of gold jewellery including wastage within 120 days of the export of jewellery, sources added.
The details of the case showed that the MCC Rawalpindi has reviewed the working of Entrustment Scheme notified vide SRO 266(I)/2001 dated May 7, 2001. An exercise was carried out by the customs officials to analyse the present trend of import/export of gold and gold jewellery. Analysis of the data of the previous years shows that there has been a massive growth in the export of the gold jewellery during 2009. The export of gold jewellery effected from this Collectorate during the last two years showed that 4848 kg of gold was exported during September 1, 2009 to September 23, 2010, through the said Collectorate.
The export data was thoroughly scrutinised and it was found that three leading traders of Rawalpindi exported consignments of gold jewellery. The exporters were required to import gold equal to the contents of gold jewellery including wastage within 120 days of the export of jewellery as provided under rule 6(iv) of the said SRO but they failed to do so despite the fact that a period of more than 6 months passed after the export of the gold jewellery. The customs department has issued notices to these exporters under intimation to Trade Development Authority and State Bank of Pakistan for taking appropriate action under the law. The export of gold jewellery of these exporters has been disallowed since October 1, 2010. Last year, in a similar case, a gold exporter approached the Ministry of Commerce and the ministry issued a letter to the exporter clarifying that contents of gold can be imported within 240 days under para 6 (iv) of said SRO 266.
According to the SRO, the sale proceeds shall be realised within 240 days from the date of export, in foreign exchange through normal banking channels or partly in the form of gold content of jewellery exported including wastages and gemstones. If the exporter fails to realise the sale proceeds within 240 days, then he will be liable to a penalty equal to one percent of sale proceeds per month. The SRO further said that the import authorisation shall be valid for 120 days from the date of departure of the exporter's representative for bringing back gold and gemstones or export proceeds and any unsold gold jewellery or gemstones.
Sources said that as per understanding of the customs department, if a trader exports gold jewellery, he shall be bound to import gold equal to the gold contents of jewellery within 120 days under the said SRO and/or sales proceeds of the gold jewellery within 240 days as per para 6(iv) of the said SRO.
In the above-mentioned rules, there is no provision for officers of customs officials to take penal action against defaulters like the said exporters who are enjoying the facilities of the said SRO by misusing Entrustment Scheme and after export of gold jewellery deliberately do not import gold. There is no provision in Customs Act, 1969 to penalise the person/party who violates rule 6(ii) of the said rules except section 156(I) clause 1 (a general clause) and the adjudicating authority competent under section 179 of the Customs Act, 1969 can impose maximum personal penalty of Rs 25,000 which is very minor for such a violator who exports gold jewellery valuing in millions of rupees causing great loss to the economy of Pakistan, sources said.
Moreover, another trend has been observed that the exporters keep on exporting gold jewellery without importing a single consignment raising quantity of the exported gold jewellery to quite high level before the limit of 120 days passes, as observed in these cases, sources said.
Keeping in view these facts and figures, the FBR is expected to seek clarification from the Ministry of Commerce whether customs department may allow exporters to import gold within 120 days equal to the contents of jewellery exported by them as per para 6(11) of SRO 266(I)/2001 or within 240 days as per instructions given in the letter of Research Officer (Exports) Ministry of Commerce.
Moreover, the FBR is considering different suggestions of the MCC Rawalpindi to regulate the import and export of gold jewellery by the customs authorities. Firstly, the Board may like to send suggestion to the Ministry of Commerce to add a rule in the said SRO empowering officers of customs not below the rank of Assistant Collector to penalise the person/persons or propose a new clause in Section 156(I) of the Customs Act, 1969 empowering the officers of Customs/Special Judge Customs to penalise and convict the person/persons who violate the condition, limitation or restrictions imposed by Ministry of Commerce vide SRO 266(I)/2001.
Secondly, the gold jewellers holding pass book may be asked to produce a Bank Guarantee/post-dated cheque in dollars equal to the value of gold contents of jewellery including wastages of jewellery being exported which may be released only after import of gold by them, if deemed appropriate.
Thirdly, in order to avoid default in import, limitation of the quantity of gold jewellery exported by any exporter may also be fixed to certain quantity after which the jeweller should be bound to import gold before exporting gold jewellery further, irrespective of prescribed period of 120 days or 240 days, as the case may be.
As a result of strict monitoring and control by the Collectorate particularly at import stage, both export and import of gold jewellery and gold has considerably declined at that station. Board may also like to check the performance of Entrustment Scheme at other stations ie Karachi, Lahore and Peshawar, a customs official of the MCC Rawalpindi added.
It is worth mentoring that the 'Import and Export of Gold, Gold Jewellery and Gemstones Order, 2001' has notified procedure for regulating the export of gold jewellery and gemstones and for import of gold and gemstones and other raw materials.
The Entrustment Scheme provides for export of gold jewellery and articles against of gold supplied as partial advance payment, by the foreign buyer, to the extent of the quantity of gold to be used including wastage, in the manufacture of the items to be exported. The exporter shall supply gold jewellery of contracted quantity of gold content within 180 days from the date of import of gold into Pakistan, the procedure added.