Customs Department Challenges DRI Authority’s Clean Chit to Adani Firms

The department has claimed that the DRI's adjudication order in the power equipment import case is "illegal and improper".

New Delhi: The Adani group’s legal troubles in a case relating to the alleged over-invoicing of imported power equipment are far from over, with the customs department challenging the clean chit given by the adjudicating authority of the Directorate of Revenue Intelligence (DRI) in an appellate tribunal.

According to a report in The Indian Express, the customs department has called the authority’s clean chit “erroneous, illegal and improper not only in law but also on facts”.

The move could also have bearing on DRI probes into alleged overvaluation of coal imports by the Adani group companies wherein progress has been stalled so far, said legal experts.

In an appeal filed at the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) recently in Mumbai, the department has claimed that the DRI’s adjudication order “suffers from several contradictions which indicate either total non-application of mind or recklessness in passing of the order”.

The customs department has further alleged that “…the manner in which the adjudicating authority has gone on to describe an otherwise dubious contract process in glowing terms as transparent, independent and good corporate governance practice… only points at eagerness and bias on the part of adjudicating authority to justify overvaluation ignoring facts to the contrary”.

On August 22, 2017, the DRI’s adjudicating authority, K.V.S. Singh, dropped all charges filed by the agency against Adani Power Maharashtra Ltd (APML) and Adani Power Rajasthan Ltd (APRL) for allegedly inflating the total declared value of the goods imported under power and infrastructure heads, which attracts zero or less than 5%, to the extent of Rs 3,974.12 crore. The decision came after the DRI alleged that the goods — power generation and transmission equipment — imported by APML and APRL in 2009 and 2010 were shipped directly to India by the original equipment manufacturers (OEMs) based in China and South Korea, while the documents were routed through an intermediary entity, Electrogen Infra FZE, UAE (EIF), created in Dubai.

The actual invoice value of the OEM was remitted to the supplier while the inflated extra amount was sent to accounts of the parent company of EIF in Mauritius, the DRI had claimed. According to the DRI, EIF was “owned and controlled” by Vinod Shantilal Adani, the eldest of the Adani brothers. The DRI has alleged that the Adani firms transacted with EIF, a related party, to siphon off money abroad.

The customs appeal disputed one of the crucial findings of the adjudication order, which had accepted the 220 per cent mark-up of the imports by the two Adani firms, stating that the contract price between APML/APRL and EIF has been arrived at independently through international competitive bidding.

The appeal has also alleged that the international competitive bidding was a “sham process”. It claimed that EIF had signed the contracts with the OEM — Shanghai Electric Company — in July 2009 nearly two months before the global tender for Tiroda Plant of APML was floated in September 2009.

Similarly, the appeal alleged that in the case of Kawai power plant of APRL, EIF had signed the contract with the OEM in November 2009, 12, days ahead of submitting the bid through the international competitive bidding process.

The Customs appeal also said that Singh’s view, that the transactions of APRL and APML with EIF were conducted at arm’s length on the basis of an assessment order of the Income Tax authority, is “not legal”. The appeal argued that the definition of associated enterprises under income-tax norms is “incomparable” with the related party concept under the Customs Act.

Overvaluation of Indonesian coal

From 2010 onwards, the DRI had initiated probe against at least 40 companies including five firms of Adani Group including Adani Power for alleged overvaluation of coal imports from Indonesia pegged at Rs 29,000 crore. 

Anil Ambani-led Reliance group companies, Essar Power, JSW Steels, Uttam Galva Steel,India Cements, Bhatia Group of Companies and NTPC are also among the fourty companies that figure in the DRI circular.

On March 31, 2016, the DRI had issued a general alert circular detailing the modus operandi adopted by various large importers involved in this scam.

According to the circular,  while the ships directly landed in India from Indonesia, bills were routed through fictitious and benami firms in Singapore, Hong Kong and Dubai before landing in India. Using the benami shell companies, mostly owned by the importing Indian Corporates, hefty profits were made by selling coal at inflated prices and the burden was borne by end electricity consumers.

Adani group is the largest importer of Indonesian coal with 70% share. It also imports coal on behalf of state-owned NTPC and MMTC as well., industry sources said.

Recently, the CBI has registered a case of corruption and cheating against officials of various companies, including public sector undertakings NTPC and MMTC, for allegedly importing inferior-quality coal disguised as superior-quality coal, and causing a loss of Rs 487 crore.

However, Adani group companies have not been named by the central agency in this case, which has surprised many in the industry given that all coal importers adopted the same modus operandi, according to the DRI.