DRI probes 12 power firms for inflating equipment imports by $10 billion

The Directorate of Revenue Intelligence (DRI) is probing 12 power companies — both from public and private sectors -- for allegedly inflating the value of the power equipment imported by them from China and South Korea by billions of dollars.

“The calculation of total power equipment import scam runs into $8-10 billion, with total value of power equipment imported by the companies shown up to $15 billion,” a senior official of customs department told dna.

"The over-invoicing of power machinery imports is not limited to two or three companies. There are several big companies who practise this mechanism to siphon off huge money outside. The government is losing billions of dollars of foreign exchange every year due to the scam," a senior DRI official told dna.

dna has learnt that the modus operandi used by two Essar companies, which are among the 12 being probed, is almost similar to the way allegedly done by Adani group of companies last year. Sources indicated to dna that other power companies are following the same route.

On March 13, the DRI slapped a show-cause notice to Essar group companies that include Essar Power Gujarat Ltd (EPGL) and Essar Power Madhya Pradesh Ltd (EPMP).

The DRI notice alleged that “total value declared for the goods imported was Rs 9,300 crore whereas the actual value was Rs 6,700 crore -- a difference of Rs 2,600 crore which has been siphoned.”

According to DRI sources, plant machinery and equipment requirement for various projects of Essar are imported directly from various manufacturers and vendors in China. Goods are shipped directly to India by the overseas supplier. But the invoice of the actual manufacturer was routed through an intermediary named Global Supplies (GS) in the UAE.

According to DRI, GS belonged to Essar Group.

The DRI alleged that GS enhanced the value which is remitted by the Essar Group; while GS remitted the actual value to the main manufacturer and retained the overvalued amount of the group.

Through the move, Essar has taken money out of the country in the name of import remittance, alleged the official.

The agency, which started its investigation since May 2014, found during its probe that the inflated invoice of power machinery was in practice between 2009 and 2013.

When contacted, an Essar spokesperson, said, “The allegations made by the DRI in the show-case notice are based on erroneous conclusions. We would explain the matter during the adjudication proceedings and are confident that such explanations would be accepted."

Regarding the ownership of GS, the spokesperson said, “GS was an Essar group company at one point of time. At present, none of the Essar companies hold any equity interest in it."

Regarding the role of GS, the spokesperson said, “It had provided substantial services to the importing companies by expediting the delivery of equipment, ensuring quality standards, timely monitoring and inspection/ testing, providing the performance guarantee to the Indian importing companies, the net margin earned by GS are reasonable and in line with similar supplier margins.”

According to the Special Investigation Team (SIT) on black money, “The reason behind increasing misinvoicing (both over and under invoicing) is the liberalisation in an environment of weak enforcing agency which resulted in loss of exchequer money. In addition, the cases filed by the income-tax and the customs departments remains pending for years."

On the other, the case related to alleged over-invoicing of capital goods done by Adani group of companies is pending over a year now. DRI issued show-cause notice to Adani on May 16, 2014. In its response, Adani group had requested government to appoint one Common Adjucating Authority (CAA), as notice was served to several companies of the group, and hence it is not possible to hear individual cases separately. But so far, no appointment has been made to hear the arguments.

SIT, in its first report on black money, revealed that between 2006 and 2011, illicit financial outflow increased tremendously. It was maximum in the year 2011 and stood at $84,933 million, increasing at the rate of 10.6% annually.

The SIT has also suggested that the slab of imports be fixed at Rs 10,000 crore and Rs 9,000 crore and downwards, and these cases be assessed afresh for possible over-invoicing under the direct supervision of designated officers known for their competence and integrity.

With increasing concern on foreign exchange loss, finance minister Arun Jaitley has made one important amendment in current financial Bill. He has included Section 132 of Customs Act 1962, in Prevention of Money Laundering Act, 2002, which says that if any company be caught doing misinvoicing, they would be given rigorous imprisonment of up to seven years.