Is The Revenue Intelligence Investigation Into The Rs 50,000 Crore Over-Invoicing Scam Heading Towards A Judicial Logjam?

24 March 2018
The finance ministry has said that it is keen on pursuing the cases arising from the DRI investigation into the over-invoicing scam, but there is a view that deliberate attempts are being made to stymie the prosecution process.
The finance ministry has said that it is keen on pursuing the cases arising from the DRI investigation into the over-invoicing scam, but there is a view that deliberate attempts are being made to stymie the prosecution process.

Over the last four years, the Directorate of Revenue Intelligence, or DRI, which is the investigative arm of the department of revenue in the finance ministry, has levelled allegations of over-invoicing of imports of coal and electricity generation equipment against at least forty of India’s biggest energy companies. The total amount involved in the scandal is an estimated Rs 50,000 crore, or more than eight billion dollars at the current exchange rate. Of this amount, around Rs 30,000 crore is on account of the over-invoicing of coal imported mainly from Indonesia. The remaining Rs 20,000 crore relates to allegations of over-invoicing of power machinery imported largely from China. The higher costs were passed on to consumers, who had to pay more for electricity.

The cases arising out of the DRI’s findings of these manipulated invoices—the undue gains from which were allegedly laundered by persons working with a host of government and private companies—seem to be heading towards a legal logjam. Government organisations, including the National Thermal Power Corporation and various state electricity boards, are involved in the alleged over-invoicing scam, along with some of India’s biggest private companies, including those in the Adani, Essar and Anil Ambani conglomerates. In a case before the DRI’s appellate tribunal, which concerns a private company called Knowledge Infrastructure Systems Private Limited, or KISPL, the investigative agency has raised doubts about the integrity of a member of the tribunal adjudicating the case. The case is crucial because it could set a precedent for other cases arising from the DRI’s investigation. As claims of corruption and favouritism emerge, the question is whether the finance ministry is diligently and expeditiously pursuing these cases, which involve corporate entities headed by politically influential tycoons and powerful technocrats. The ministry has said that it is keen on pursuing these cases, but there is a view that deliberate attempts are being made to stymie the prosecution process.

The DRI investigation alleged that 40 major companies, including Knowledge Infrastructure Systems Private Limited, had inflated the value of coal imported from Indonesia for power generation, resulting in illicit benefits of Rs 30,000 crore. The value and grade of the imported coal was allegedly misrepresented to have a higher value, leading to the cost of the coal being wrongfully increased before the regulatory authorities, which, in turn, resulted in consumers having to pay more for electricity. The DRI investigation further claimed that the illegal gains were then laundered through shell companies in tax havens outside India.

In proceedings based on the investigation, KVS Singh, an adjudicating authority of the DRI in Mumbai, has passed orders in cases relating to three companies. On 22 August last year, Singh cleared two companies, both part of the Adani Group, of charges of over-invoicing imported power-plant equipment worth Rs 3,974 crore. The investigating agency reportedly filed an appeal against the decision on 28 November, before the Customs, Excise and Service Tax Appellate Tribunal—the appellate body for the DRI’s adjudicating authority—in which it argued that the order suffers from “total non-application of mind or recklessness.”

Singh’s order appeared to contradict an earlier order that he passed on 23 December 2016, which concerned allegations against KISPL. In this order, he had accepted the DRI’s charges of over-valuation of coal imports from Indonesia and imposed a penalty of Rs 17.50 crore on the company. Singh also imposed a penalty of Rs 1.25 crore on Rahul Bhandare, the managing director of the company, and another of Rs 25 lakh on Vipin Mahajan, a former employee of the public-sector National Thermal Power Corporation who is currently a director of the company. In both cases—the one against KISPL and the one against the two companies in the Adani Group—a virtually identical modus operandi was apparently deployed for the over-invoicing and laundering process.

Paranjoy Guha Thakurta  is an independent journalist.

Keywords: Corporate goliaths coal Finance Ministry Directorate of Revenue Intelligence
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