Adani Group accused by DRI of evading Rs1000 cr taxes and money laundering

Adani Group accused by DRI of evading Rs1000 cr taxes and money laundering

New Delhi ,Jan 9:The corporate conglomerate headed by Gautam Adani has been accused by the Directorate of Revenue Intelligence (DRI) of having allegedly evaded taxes and laundered money to the tune of around Rs 1,000 crore while trading in cut and polished diamonds and gold jewellery, according to an expose by Paranjoy Guha Thakurta, Advait Rao Palepu, Shinzani Jain reported in December 31 issue of Economic and Political Weekly. Adani is considered to be close to Prime Minister Narendra Modi. Thus it turns out to be an acid test for Modi dispensation.

The DRI has claimed that companies in the Adani Group misused export incentives and indulged in high-velocity circular trading through a complex web of front companies located in different parts of the world. It is alleged that in addition to five Indian companies, AEL directly and indirectly managed and controlled 45 overseas corporate entities. Adani Enterprises Limited (was earlier called Adani Exports Limited or AEL).
The DRI is an investigative wing of the Department of Revenue in the Ministry of Finance. The government seems strangely reticent about filing a review petition in the Supreme Court that could protect its revenue interests. The expose shocks the nation at a time when Modi is on a crusade to unearth tax evasion and black money.
A set of firms in the Adani Group apparently misused various export incentive schemes through a complex web of front companies located in different parts of the world. These shell companies, which indulged in high-velocity “circular trading” among related corporate entities, were also used to launder money, the DRI has claimed.

All the corporate entities were directly or indirectly controlled by, or associated with, AEL, a flagship firm of the Adani Group. The DRI has alleged that AEL flagrantly mis-declared the freight on board (FOB, also called free on board) values of cut and polished diamonds (CPD) and gold jewellery.

The investigative agency has also claimed that group companies and their associates indulged in circular trading to “artificially” inflate exports and “fraudulently” avail of financial benefits from various export promotion schemes initiated by the Directorate General of Foreign Trade (DGFT) in the Ministry of Commerce and Industry (MCI).

AEL and its group/associate companies had earlier been exporting various commodities from food grain to textiles. The Adani Group had a relatively small export turnover of just over Rs 400 crore in 2002–03. In 2003-04, the total export turnover of AEL suddenly jumped more than 11 times, to be precise, by 1,181 per cent.

The division bench of the apex court, comprising Justices A K Sikri and Rohinton F Nariman, used very harsh language to highlight how the firms “misused” benefits by “fraudulently” inflating export turnover, citing “conclusive” evidence of how AEL increased its exports of rough diamonds despite the fact that India is not a rough diamond producing country.

The order reads: “The same set of diamonds was rotating and these never entered the Indian domestic territory or to the end consumers abroad. The value of such exports in the past two years may exceed Rs 15,000 crore … Many of these exporters exported to their own counterparts in Dubai and Sharjah. The jewellery attracted a 5% import duty at Dubai, the consignments were declared as jewellery in India but were declared as scrap in Dubai to avoid the import duty. (DGFT and Another vs Kanak Exports and Another 2015).”

There are a few thousand instances of circular trading that have been detailed in the DRI’s notices. The firms claimed value addition of 5%–10% in their official books of account although all that was done was to sort, sieve and clean the diamonds by boiling them in water. Such activities do not involve great technical expertise and therefore cannot be construed as value addition.