An Indian company engaged in diamond certification or grading for a U.S. client performs a service that qualifies as an “export of services” under the Foreign Exchange Management Act, 1999 (FEMA).
In this structure, diamonds are temporarily imported from abroad for laboratory certification and re-exported to the same owner after the service.
Ownership remains with the foreign client — the transactional essence lies in the certification service, not in the diamonds themselves.
This model involves a three-dimensional compliance interface:
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FEMA – for foreign exchange realization,
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Customs/FTP – for physical import and re-export, and
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GST – for classification as export of services.
Legal Framework
| Framework | Governing Provisions | Compliance Focus |
|---|---|---|
| FEMA | Sections 5, 7 & 8 of FEMA, 1999; Export of Goods & Services Regulations, 2015; Master Direction on Import of Goods & Services | Forex realization, GR waiver, AD Bank routing |
| Customs / FTP | Sections 74 & 143, Customs Act, 1962; FTP Para 4.75; Notification No. 40/2015-Cus. & 45/2017-Cus.; Circular No. 30/2009-Cus. | Duty-free import & re-export within 3 months |
| GST | Sections 2(6), 13(3)(a), and 16 of the IGST Act, 2017 | Export of service — zero-rated under LUT/Bond |
FEMA Compliance Essentials
(A) Nature of Transaction – Current Account
Temporary import for certification does not involve transfer of ownership or creation of capital liability.
It is a current account transaction under Section 5, requiring no prior RBI approval.
However, all forex transactions must be routed through an Authorized Dealer (AD) Bank.
(B) Export of Services and Realization
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Certification fees are to be realized in convertible foreign exchange within nine months.
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Receipts should be supported by BRC/FIRC.
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No separate Export Declaration Form (EDF) is required for services; AD bank reporting suffices.
(C) GR Waiver for Re-Export of Diamonds
Since the re-export involves no sale, there are no proceeds to declare.
Hence, a GR waiver must be obtained from the AD bank for the physical re-export component.
Documents for GR Waiver:
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Import Bill of Entry
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Re-export Shipping Bill
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Certification service contract and invoice
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Proof of identity linkage between import and re-export
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Declaration of non-transfer of ownership
The AD bank may approve directly or refer to RBI, depending on limits.
Customs and FTP Compliance
A. Eligibility
Only authorized laboratories (as notified under FTP Para 4.75) may import diamonds for grading/certification.
Examples include GIA India, Indian Diamond Institute (Surat), and IIDGR (De Beers).
B. Import Procedure
| Step | Requirement |
|---|---|
| 1 | Execute General Bond / Bank Guarantee under Section 143 of the Customs Act. |
| 2 | File Bill of Entry marked “For certification only – no sale.” |
| 3 | Maintain control register (carat, clarity, cut, colour, control number). |
| 4 | Avail duty-free clearance under Notification 40/2015-Cus. |
| 5 | Ensure import and re-export through the same port. |
C. Re-Export Procedure
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Timeline: within three months (extendable).
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Shipping Bill: must cross-reference original Bill of Entry.
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Declaration: same goods being re-exported post-certification.
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Default: attracts customs duty + penalty.
D. Audit and Reporting
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Quarterly reconciliation statement to Customs by 25th of next month.
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Surprise audits at least twice a year.
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Retention of records: 5 years (Bills of Entry, Shipping Bills, control registers, service contracts).
GST Treatment
| Aspect | Position |
|---|---|
| Nature of Supply | Export of Service (Sec. 2(6), IGST Act) |
| Place of Supply | Outside India – as per Sec. 13(3)(a) |
| Tax Treatment | Zero-rated under Sec. 16 |
| Export Mode | LUT/Bond without payment of IGST |
| Input Tax Credit (ITC) | Refundable on inputs and input services |
| Import IGST | Exempt under Customs Notification 40/2015-Cus. |
Integrated Compliance Roadmap
| Phase | Key Actions & Documents |
|---|---|
| Pre-Import | DGFT authorization → Execute General Bond → Service Agreement → Inform AD Bank → Apply for GR Waiver |
| Import | Bill of Entry (certification purpose) → Control Register → Duty-free clearance |
| During Service | Perform grading → Raise export invoice → Receive payment → Obtain BRC/FIRC |
| Re-Export | Shipping Bill (linking import details) → Proof of re-export identity → Customs clearance |
| Post-Export | File quarterly return → Reconcile import/export → Claim ITC refund → Report forex realization |
Comparative Framework Summary
| Parameter | FEMA | Customs / FTP | GST |
|---|---|---|---|
| Core Objective | Forex realization & service export compliance | Physical import/re-export regulation | Zero-rating of export services |
| Nature | Current account transaction | Temporary import under bond | Zero-rated export |
| Approvals | None (AD bank reporting) | Bond + authorization | LUT/Bond |
| Key Documents | Invoice, BRC/FIRC, GR Waiver | Bill of Entry, Shipping Bill | Export invoice, ITC refund documents |
| Time Limit | 9 months for realization | 3 months for re-export | As per GST return cycle |
| Major Risk | Delay in forex realization | Delay in re-export | Non-reporting of zero-rated export |
Legal Interpretation Highlights
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Temporary import ≠ capital transaction: Ownership stays abroad; Section 5 applies.
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Dual-track compliance: Goods follow Customs law; services follow FEMA.
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Re-export waiver: GR waiver ensures FEMA closure of goods leg.
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Customs discipline ensures FEMA safety—non-re-export can convert the transaction into an import, breaching FEMA limits.
Conclusion
The temporary import of diamonds for certification and re-export is a legally compliant model when executed with procedural precision.
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No RBI approval needed (current account nature)
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Foreign exchange for service fees realized through AD bank within nine months
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GR waiver essential for re-export of same goods
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Customs bond, re-export, and recordkeeping mandatory
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GST zero-rating available under LUT/Bond
A transaction that seamlessly aligns Customs discipline, FEMA control, and GST efficiency not only ensures compliance but also strengthens India’s position as a trusted global hub for diamond certification.
The Essence
“Customs ensures the diamonds return, FEMA ensures the money comes in, and GST ensures the service remains tax-free — together, they create a flawless compliance diamond.”
