With revenues falling, taxmen rake up 3-yr-old demonetisation cases

When Modi announced a sudden ban on 500 and 1,000 rupee bills on November 8, 2016 to weed out undeclared cash, clients thronged the store of one Mumbai-based jeweller, clamouring for necklaces, rings — anything gold.

The jeweller — who asked to only be identified by his surname, Jain, to avoid retribution — said he sold his entire stock at a steep premium that day and pocketed revenue usually earned in two weeks.

Three months ago, he received a tax notice asking for the source of those earnings and ordering him to turn in all revenue made that night, under suspicion that black money was behind the purchase. Jain appealed against the order, but as per Indian law had to deposit 20 per cent of the disputed amount.

“If we lose the case, then we have to close the business to pay the remaining amount,” said Jain. About 15,000 Indian jewellers have been sent tax demands similar to Jain’s, said Surendra Mehta, secretary of the India Bullion and Jewellers Association.

Mehta estimated authorities are seeking around Rs 50, 000 crore from people in the jewellery sector.

“This could create a problem for the industry in the long run as those who need to pay 20 per cent to appeal may have to purchase bullion or jewelry on credit,” said Mehta. If they lose their cases, the jewellers could default on the loans, potentially hurting suppliers and bankers, he said.

A tax official based in Kolkata, likened the exercise to “being asked to dig up a dead body after three years, find out how the person died and catch the killer.” Two senior tax officials told Reuters the department has sent thousands of notices this year, including to jewellers, demanding an estimated 1.5-2 trillion rupees in taxes.

The Central Board of Direct Taxation and the Finance Ministry did not immediately respond to a request for comment, and the government has not spoken about the tax demands on the jewellers.