The adjudication authority of the Directorate of Revenue Intelligence (DRI) has passed its first order upholding the showcause notice of the DRI against one of the 40 prominent coal importers being probed for alleged overvaluation of Indonesian coal imports, collectively pegged at Rs 29,000 crore. The adjudication authority, KVS Singh imposed a penalty of Rs 17.5 crore and Rs 1.25 crore on Delhi-based Knowledge Infrastructure Systems Pvt Ltd and its promoter, Rahul Bhandare for mis-declaration of coal quality and its imports, according to findings of a December 23 order reviewed by The Indian Express.
“I hold that the declared CIF (Cost, Insurance and Freight) value of the goods under the bills of entry and the quality parameters declared by the noticee (Knowledge Infrastructure Systems) in terms of the provision of rule 11 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 are mis-declared and hence I reject the declared CIF value under rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007,” said the adjudication order of Singh.
The adjudicating authority also ordered “re-determination of the value of the goods” covered under the bills rejected by it from Rs 112 crore to Rs 99 crore. In an email statement to The Indian Express, the official spokesperson of Knowledge Infrastructure Systems said the findings of the adjudicating authority are “absolutely perverse” and “given the gross miscarriage of justice”, the company intends to take appropriate legal recourse. “The (DRI) showcause notice had alleged that the value of the coal imported had been mis-declared. It, however, suppressed the fact that the quality of the coal had been tested by the customs authorities at the time of importation and the goods were cleared after they were found to conform to the declaration.”
“This inconvenient fact was brought to the notice of the adjudicating authority. In a remarkable effort to build a false case against us, the authority appears to have summoned some test reports that were never supplied to us. Worse, the authority has proceeded, completely erroneously, to wrongly dismiss the testing by the customs department. No chance was given to us to show the test reports of the customs authorities themselves would have exonerated us,” said the spokesperson. The Bombay High Court had earlier directed the adjudication authority to pass an order in the case pertaining to Knowledge Infrastructure Systems in a time bound manner, after the firm challenged the show cause notice issued by DRI.
The DRI showcause notice alleges that Knowledge International Strategy Systems Pvt. Ltd, a wholly owned subsidiary of the Indian company first bought the coal from a Switzerland-based firm and then the same consignment was sold to two intermediary firms, which then “dispatched the coal to the Indian firm. In these transactions, the price of coal sold by the two intermediary firms was “substantially higher” than the price at which Knowledge International Strategy Systems Pte. had bought it from the Switzerland firm.
Apart from this, the DRI notice has alleged that it has found two Certificates of Sampling and Analysis of Coal (COSA), showing different specific parameters of coal. While the first COSA obtained from the Switzerland firm was “suppressed”, the second COSA from the intermediary firm was submitted to the customs and the public sector unit–MAHAGENCO that bought coal from the Indian firm. This was as per specifications of MAHAGENCO’s bid document. According to the findings of the order, the DRI showcause notice alleged that by “adopting the said modus operandi, imported sub standard coal was passed onto MAHAGENCO as superior quality coal meeting their bid specifications and amounts corresponding to the artificially inflated import invoices, which included the abnormal profits made by the noticee (Knowledge Infrastructure Systems) by way of the fraudulent transaction, were shifted to Hong Kong/Singapore as import remittances.”
The spokesperson of the company, however said the DRI adjudication authority has “brushed aside” the comprehensive testing of coal done by MAHAGENCO and instead relied on “photocopies of test reports supplied from an unverified source”to arrive at conclusions. “It is pertinent to point out that in case coal of inferior quality had been imported, the immediate impact would have been on power generation. But MAHAGENCO never suffered any such problems and were satisfied with the quality of coal. Even the show cause notice did not allege that there was any complaint or knowledge by MAHAGENCO,” said the spokesperson.
The overvaluation of coal imports by 40 different Indian companies came to light in 2014 when the DRI raided over 80 shipping companies, laboratories and intermediaries across India including Maharashtra, Delhi, Gujarat, Karnataka, Odisha, West Bengal, Andhra Pradesh and Kerala to obtain documents that show the real value of imports. Most of the power companies, currently under the DRI scanner have denied overvaluation of coal imports from Indonesia.