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DRI authority’s clean chit to Adani firms is illegal: Customs appeal

DRI’s adjudicating authority, K V S Singh, dropped all charges filed by the agency against Adani Power Maharashtra Ltd and Adani Power Rajasthan Ltd for allegedly inflating the value of the goods imported under power and infrastructure heads.

Written by Khushboo Narayan | Mumbai | Updated: February 12, 2018 7:17 am
Adani, Adani Group, Carmichael coal project, Steven Ciobo, business news Gautam Adani (Reuters Photo)

The order of the Directorate of Revenue Intelligence’s adjudicating authority to strike down all proceedings launched by the DRI against two Adani Group firms in a power equipment overvaluation case of nearly Rs 4,000 crore is “erroneous, illegal and improper not only in law but also on facts”, according to the Customs department.

In an appeal filed at the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai on November 28, the department claimed that the adjudication order “suffers from several contradictions which indicate either total non-application of mind or recklesness in passing of the order”.

It 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 per cent duty, 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.

READ | Adani firm moves Singapore court in attempt to block information to DRI

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 Customs appeal has 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.

It stated that the Customs Act 1962, and the valuation rules deal with each individual transaction involving import of goods between a related party and relatable costs and services. The Income Tax Act 1961, it said, deals with all transactions of goods and services between associated enterprises having an influence on overall profit or expenditure of an assessee under the income tax.

“In related party transaction, an enterprise may be charged for under-valuation or over-valuation of goods in a transaction but the same enterprise may pass the test under the Income Tax Act 1961 for not having biased profit and expenditure between associated enterprises and vice versa. The mode, manner and procedure for assessment of actual transaction between related party under the Customs Act 1962 cannot be equated with the benchmarking method of the Income Tax Act,” the Customs appeal argued.

The appeal alleged that EIF, APML and APRL failed to produce evidence to support the UAE entity’s credentials as a genuine bidder having prior experience of executing Engineering Procurement and Construction (EPC) contracts. It also claimed that the contracts between EIF and the two Adani firms were “equipment supply contracts and not EPC contracts”. When contacted, an official spokesperson of the Adani Group declined to respond in detail to a questionnaire sent by The Indian Express on the allegations levelled by the Customs department in its appeal.

In an emailed statement, the spokesperson said: “The Adjudicating Authority after dealing with in detail the show cause notice (SCN), set aside all the allegations and dropped the SCN against APML & APRL. It has been held by the Adjudicating Authority that all the imports were genuine, being undertaken at arm’s length, and concluded that the value declared is correct and the value (is) not required to be redetermined. Please note that the subject order demonstrates that we have complied with the applicable laws and the transactions are conducted within the framework of law. Since the matter is currently sub-judice before the Hon’ble Appellate Tribunal, Mumbai, we cannot offer any detailed explanation at this point of time.”

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  1. harun hafeez
    Feb 12, 2018 at 8:40 am
    In this very forum i asked why the Dollars saved in Crude bill after crude collpased to 40$/barrel for 3 years,dont reflect in the Re strenght or the CAD or Forex enchange reserves.People like Bhalla ignored this fact that 60 billion a year for 3 years was saved in Crude import bill.That is 180 billion in 3 years.So much hard currency unaccounted.You know how the Hard currency was siphoned off by hiking Import equipment costs but we have people blaming those dead for decades for the loot which continues till date.Did the CAG not raise 30000 cr in jacked up Invoice in KG Basin scam,what was done about that ,nothing.What will be done in this ,Nothing.What was done in a case were faked dry fruit imports were made and over 354million dollars was sent to Hong Kong.Nothing.What is hilarious is the DRI is in a tearing hurry to give a clean chit,did the DRI seek evidence of payments to the company from which equipment was bought or was the money sent to s subsidiary of the Importer
    1. Jaganathan Vijayakumar
      Feb 12, 2018 at 8:03 am
      We have to appreciate the central government by allowing custom department to go for apeal even though opposition parties are crying Modi is supporting Adani . Modi government is giving free hand to all departments for revenue generation like Space Department is allowed to launch number of satellites for maximising revenue which was suggested by Modi during his review with Space Department. Paid media don't highlight such good news except Indian Express. We hope Indian Express support Dr.Anbumani Ramadas as CM of Tamilnadu like Modi at the center for development of Tamilnadu.
      1. harun hafeez
        Feb 12, 2018 at 8:47 am
        the case is in the Court as a PIL after the scam became news in the press and the author of that story lost his .Failing to file a appeal will only invite a Question from the Court on why no appeal was made.Did the DRI go into whom the hiked up invoice money was sent to or was the money sent to Importers subsidiary registered abroad.Was all that money paid to the manufacturer from whom the euipment was sourced.As for Anbumani pl tell us how many Medical Colleges sanctioned by him still rune and how many were derecognised,why was Pasteur ins ute in OOty closed down,who got the contratc for imports of vaccines as well.Are you paid for writing or are u doing it in public interest.If u are paid it will not be as much as Anbumani made in vaccine imports or for giving go ahead for these Medical colleges.
      2. Sankaran Krishnan
        Feb 12, 2018 at 7:13 am
        This shows how our Govt. Agencies/Departments are corrupt and though it is good to expose one and the other but in the end the company will cover up by taking car eof the customs who are more corrupt than the DRI and we the people and the media are the fools trusting their war of statements and in the end both will get the good chit and the company will move forward and claim honesty in their dealings and blame the Opposition Parties for the expose (Irrespective of the Party that rules/d) !!!