A PUBLIC sector enterprise under the Central government, an institution set up by the Tamil Nadu government and a Chennai-based private firm have been issued show-cause notices by the Directorate of Revenue Intelligence (DRI) for allegedly indulging in “trade-based money laundering” by “artificial inflation” of coal imports from Indonesia to the tune of Rs 589 crore.
The DRI notice has alleged that MMTC Ltd, Tamil Nadu Newsprint and Papers Ltd (TNPL) and Coastal Energy Pvt Ltd (CEPL) colluded with foreign firms of the CNO Group and imported at least 186 consignments of coal between 2010 and 2015 by “declaring the value, which they knew was not true”. CEPL is a part of the CNO Group, which has firms in UAE, Singapore, Indonesia and India.
When contacted by The Indian Express, MMTC Ltd said that it “strongly” denies the allegation. TNPL questioned the DRI’s method of calculation and said that it will provide all documents relating to the purchase of imported coal to the adjudicating authority. CEPL did not respond to queries.
The Indian Express had reported on September 13, 2016, that the DRI is probing at least 40 prominent coal importers, including firms of Adani Group, Reliance ADAG Group and Essar Group, for alleged overvaluation of Indonesian coal imports, collectively pegged at Rs 29,000 crore.
According to the latest DRI notice, the agency has found that several coal traders were directly importing Indonesian coal to Indian ports by allegedly routing the invoices “through one or more related /associated intermediary firms based abroad” after artificially inflating its value.
To justify the inflated price, “manipulated test reports” of the quality of coal was submitted to public sector units and Indian Customs, the notice has alleged.
The notice alleged that this coal was then supplied to public sector coal-based thermal power generation companies in India at the “artificially inflated import price and the inflated price is remitted from India to the intermediary firms abroad which remit only the actual price to the suppliers of the Indonesian coal and the balance is siphoned off elsewhere”.
The DRI has accused CNO Group and its top officials of “siphoning off foreign exchange abroad” through alleged mis-pricing of coal and “routing invoices through related intermediary firms (of the CNO Group entity)”.
“It appears that CEPL, MMTC and TNPL have colluded with CNO Group entities and have been aided and abetted by various persons to import impugned goods by artificial inflation following a well-planned modus-operandi of Trade Based Money Laundering,” stated the DRI notice.
The notice alleged that in case of MMTC, TNPL and CEPL, the total value of overpricing of Indonesian coal imports between 2010 and 2015 was Rs 363 crore, Rs 198 crore, and Rs 27 crore, respectively — the percentage of overpricing was 43 per cent, 25 per cent and 23 per cent, respectively, it claimed.
The DRI notice states that the overvaluation of coal supplied to power generating companies had the effect of artificially raising the tariff values fixed by the Central Electricity Regulatory Commission (CERC) or the respective state regulatory commissions.
Typically in India, the power tariff is regulated based on the costing data provided by the power generator.
According to regulations, the tariff comprises of capacity charges and energy charges. The capacity charges are fixed annually, based on various factors. The energy charges are the cost of primary and secondary fuel used to generate power. Artificial inflation of value of the imported coal increases the landed cost of coal, which is a primary fuel in coal fired thermal power plants, said the DRI notice.
“The higher tariff dispensed by the regulator to the power generator enhances the cost of purchase of the power distributor which in turn factors this artificially enhanced cost in its billing to consumers,” the DRI notice said.
Out of the 186 coal consignments imported by MMTC, CEPL and TNPL that have come under the DRI scanner, at least 143 were supplied to NTPC, 13 to MAHAGENCO, 4 to APGENCO and APCPL each and 17 to various private parties in the country. Apart from this, five consignments imported by TNPL was for its own use.
In an emailed response to The Indian Express, a MMTC spokesperson said that the DRI has asked it to keep its response to the show-cause notice in abeyance till a common adjudicating authority is appointed.
“We strongly deny the allegation. Price for the supplies to NTPC is based on the price determined at the time of NTPC open global tender and the terms and conditions of the contract signed. As per the contract terms, prices are linked with international coal index and quality/quantity is final for all practical purposes as per testing and analysis done at NTPC lab at the time of receipt of material in the plant. Payment is released by NTPC plant only after receipt of the material by NTPC, after satisfying the quality, quantity and other parameters of the delivered material and after duly testing/ analysis of coal by NTPC power plants in their labs,” said the MMTC spokesperson.
MMTC also said that it has not received any complaint from NTPC on the coal supplied by it. “NTPC plant was fully satisfied with its price, quality and quantity. MMTC role is limited as the quality/quantity and other parameters of coal are tested and accepted by the power plant which is final and binding for all including MMTC,” said the spokesperson.
“NTPC floated a open global tender wherein MMTC participated with a back-up of M/s. Coastal Energy on back to back terms as only one of the bidders in the tender. Considering the lowest price offered by MMTC as compared to other bidders, NTPC placed the order on MMTC. Only after acceptance of price and other terms and conditions by the end user, i.e., NTPC or any state electricity board; MMTC confirms the order to associate suppliers,” the MMTC spokesperson said.
TNPL said it has submitted its reply to the DRI notice. The company said it purchases imported coal on Cost and Freight (C&F) basis through global tenders. For this, the firm follows the system of tender-cum-reverse auction, it said.
“The quality parameters of imported coal are given in the tender documents. As per tender conditions, the quality parameters are tested at TNPL site through third-party agencies like Inspectorate, Mithra S K, Geochem, Alex Steward and payment made accordingly. DRI has taken the Freight on Board (FoB) rate appearing in Form A1 document submitted by the seller and added to that the sea freight and derived the C&F rate and compared the derived C&F rate as above with the C&F rate finalised through tender-cum-reverse auction basis and issued show cause notice. As the purchase is made on C&F basis through competitive bids, the break-up details has no relevance,” said the official spokesperson of TNPL in an email.
TNPL also said that the DRI has referred its case to the Commissioner of Customs (Prevention), Tiruchirappalli, and the company will provide all the documents relating to purchase of imported coal to the adjudicating authority.
The DRI show-cause notice has charged the three coal importers MMTC, TNPL and CEPL under Sections 112 (a) & (b), read 112 (iii) and 114AA of the Customs Act, 1962, which pertain to penalty on entities for improper import of goods and confiscation of such goods.