It has been a scam that has been on for a long time, siphoning off thousands of crores from our exchequer without even a murmur. The mother of all rip offs has been kept under wraps thanks to high-level collusion between politicians, bureaucrats and the conmen. The scandal takes its origins from a slew of schemes that were ostensibly meant to provide a fillip to exports from the country.
The Duty Free Replenishment Scheme (DFRC) and Advanced Licence Scheme (ADL) schemes were promoted by Ministry of Commerce, Government of India, to encourage value addition to textile sector ports by using powerlooms. Under these schemes, exporters could import yarn without paying any import duties. The imported yarn is then meant to be processed into textiles, and exported within set time frames. But as is the wont, every rule has a loophole that is be exploited by crooks. Over the years, this scheme has been extended despite strenuous objections from the Ministry of Finance, resulting in severe loss to the Government.
The scamsters who run this mafia operation operate out of two hubs, Surat and Hyderabad. The yarn is imported in containers out of major Indian ports, the bulk of which come out of Nava Shweha port, Mumbai. The reason for selecting a busy port is to ensure that customs officials, who are hard-pressed for time, do not start looking into details about the destination of the material. Once the containers are cleared out of the port they are trucked out to Surat, where they are clandestinely sold to local textile units on a 50% mark up. This act is perpetuated by hundreds of fictitious firms, most of which exist on paper. Officials of the Directorate of Revenue Intelligence (DRI) have tracked hundreds of such firms only to hit a dead end. Most of them are one-room offices, which are used only as a mailing address. On the other hand, some firms that do have a semblance of existence, create fake export papers and claim the benefits.
Under DFRC, the company in question first exports the consignment and then exports the raw material, which was required for production. DRI officials say that using fake documents the yarn is showed as having been transported out of Surat to Hyderabad, while in reality nothing moves. DRI officials had better luck in shutting down the network set up by scamsters in cities like Patna, but not here. DRI officers have checked out the antecedents of a number of trucks at local RTA offices in Gujarat, only to learn that most of them were fake. Many of the number plates of the trucks mentioned in the transport documents were in fact, autorickshaws and scooters. Raids by DRI officials at numerous checkposts in border districts of Andhra Pradesh revealed that none of the so-called trucks from Surat ever entered Andhra Pradesh.
Hyderabad's association with this scam can be traced to a number of powerloom units in its vicinity, many of which are defunct now. The existence of a number of export oriented units make things easy for the scamsters. According to rules, the textile produced under the two schemes can be sold to export oriented units (EOUs), and are treated as deemed exports. Here again, fake papers are created to show that sales have been made to non-existent EOUs, and the benefits claimed. The re-warehousing in Hyderabad has been aided by dismantling of the licence raj, which prohibits excise officers from visiting the suspect powerloom factories. The yarn that is mostly exported from Korea and Taiwan goes through five to six processes before it is classified as a textile.
The kingpin of the scam who is based in Hyderabad, is said to be a former senior official of the Central Excise and Customs department. The man in question masquerades as a Telugu film producer, and is said to have enormous political clout both at the state and the central level. This has prevented DRI officials in Hyderabad from pinning him down despite firm leads. This man in question, along with others of his ilk, have floated numerous front companies in Hyderabad including two major ones which have been tracked by DRI officials, Ahmed garments and Royal fabrics. In cases where DRI officials have been able to act on fake companies, they have been able to only round up junior staff like clerks and receptionists who are listed as directors of the fictitious companies. The big fish, stay out of the game and remain only in the shadows. The film producer operates along with his aides have made millions through this scam trade most of which have been invested in real estate in Andhra Pradesh and in producing Telugu films.
The irony of it is that when DRI officials tried to use strong-arm methods to extract information from the detainees, they filed complaints with state and national Human Rights Commissions. Most of the tip offs to DRI come from their network of informers and Indian companies who are affected by the sale of duty free imported yarn at low prices.
Disturbed by huge revenue losses, Finance Ministry recently issued a special circular directing customs officials at all ports in the country to be on the look out for suspiciously large amount of yarn imports. Interestingly, the perpetrators of the fraud avoid smaller ports and Inland Container Depots, where customs officials are able to track such consignments. Unlike the DFRC scheme, the LAS scheme is spawning the biggest scamsters. Under ALS scheme, the first licence is sent by post to the company and the rest of the licences can be collected in person.
To make this possible, the fake companies often provide the address of a shop or a house, which in reality is just a mailing address. Once the initial licence has been collected, the entity vacates the premises. The ALS scheme also provides a window of two years from the import of the raw material to fufill the commitments. And predictably, in these two years the companies vanish into thin air and new ones take their place.
Having tried and failed in their attempts to nail the erring companies, DRI officials are now adopting different tactics. They take along textile engineers during the raids on powerlooms and this move has paid off. The textile engineers under panchnama, are able to certify if the particular factory is capable of producing textile from the imported yarn.
Raids on units around Hyderabad have revealed rusted machinery which have nor been used for years, and are in no way capable of producing anything, leave alone textiles. "But when we close one door, another opens" says a frustrated DRI official. Using their clout in the corridors of power, the scamsters have been able to file false complaints and get government agencies to conduct raids on the investigating officers based in Hyderabad. "Why should we get into trouble for doing our job" bemoans a DRI official. "Thanks to their political connections no one can touch them, and they have proved that time and again."
DRI officials say that this scam cannot be shut down overnight and will take months of co-ordinated work between central and state agencies. "What we are now looking is only a tip of the iceberg, and if busted will overshadow other similar scams by a huge margin," adds a DRI official. This can be done by conducting intensive checks of de-bonded warehouses in Hyderabad and other Indian cities. DRI officials suspect that very little of the so-called exports from Export oriented units like the Kandla Free Trade Zone (FTZ) are physical in nature. At the end of the day, it’s all about who will take a lead in closing down the mother of all scams. It depends on whom you ask.
The Duty Free Replenishment Scheme (DFRC) and Advanced Licence Scheme (ADL) schemes were promoted by Ministry of Commerce, Government of India, to encourage value addition to textile sector ports by using powerlooms. Under these schemes, exporters could import yarn without paying any import duties. The imported yarn is then meant to be processed into textiles, and exported within set time frames. But as is the wont, every rule has a loophole that is be exploited by crooks. Over the years, this scheme has been extended despite strenuous objections from the Ministry of Finance, resulting in severe loss to the Government.
The scamsters who run this mafia operation operate out of two hubs, Surat and Hyderabad. The yarn is imported in containers out of major Indian ports, the bulk of which come out of Nava Shweha port, Mumbai. The reason for selecting a busy port is to ensure that customs officials, who are hard-pressed for time, do not start looking into details about the destination of the material. Once the containers are cleared out of the port they are trucked out to Surat, where they are clandestinely sold to local textile units on a 50% mark up. This act is perpetuated by hundreds of fictitious firms, most of which exist on paper. Officials of the Directorate of Revenue Intelligence (DRI) have tracked hundreds of such firms only to hit a dead end. Most of them are one-room offices, which are used only as a mailing address. On the other hand, some firms that do have a semblance of existence, create fake export papers and claim the benefits.
Under DFRC, the company in question first exports the consignment and then exports the raw material, which was required for production. DRI officials say that using fake documents the yarn is showed as having been transported out of Surat to Hyderabad, while in reality nothing moves. DRI officials had better luck in shutting down the network set up by scamsters in cities like Patna, but not here. DRI officers have checked out the antecedents of a number of trucks at local RTA offices in Gujarat, only to learn that most of them were fake. Many of the number plates of the trucks mentioned in the transport documents were in fact, autorickshaws and scooters. Raids by DRI officials at numerous checkposts in border districts of Andhra Pradesh revealed that none of the so-called trucks from Surat ever entered Andhra Pradesh.
Hyderabad's association with this scam can be traced to a number of powerloom units in its vicinity, many of which are defunct now. The existence of a number of export oriented units make things easy for the scamsters. According to rules, the textile produced under the two schemes can be sold to export oriented units (EOUs), and are treated as deemed exports. Here again, fake papers are created to show that sales have been made to non-existent EOUs, and the benefits claimed. The re-warehousing in Hyderabad has been aided by dismantling of the licence raj, which prohibits excise officers from visiting the suspect powerloom factories. The yarn that is mostly exported from Korea and Taiwan goes through five to six processes before it is classified as a textile.
The kingpin of the scam who is based in Hyderabad, is said to be a former senior official of the Central Excise and Customs department. The man in question masquerades as a Telugu film producer, and is said to have enormous political clout both at the state and the central level. This has prevented DRI officials in Hyderabad from pinning him down despite firm leads. This man in question, along with others of his ilk, have floated numerous front companies in Hyderabad including two major ones which have been tracked by DRI officials, Ahmed garments and Royal fabrics. In cases where DRI officials have been able to act on fake companies, they have been able to only round up junior staff like clerks and receptionists who are listed as directors of the fictitious companies. The big fish, stay out of the game and remain only in the shadows. The film producer operates along with his aides have made millions through this scam trade most of which have been invested in real estate in Andhra Pradesh and in producing Telugu films.
The irony of it is that when DRI officials tried to use strong-arm methods to extract information from the detainees, they filed complaints with state and national Human Rights Commissions. Most of the tip offs to DRI come from their network of informers and Indian companies who are affected by the sale of duty free imported yarn at low prices.
Disturbed by huge revenue losses, Finance Ministry recently issued a special circular directing customs officials at all ports in the country to be on the look out for suspiciously large amount of yarn imports. Interestingly, the perpetrators of the fraud avoid smaller ports and Inland Container Depots, where customs officials are able to track such consignments. Unlike the DFRC scheme, the LAS scheme is spawning the biggest scamsters. Under ALS scheme, the first licence is sent by post to the company and the rest of the licences can be collected in person.
To make this possible, the fake companies often provide the address of a shop or a house, which in reality is just a mailing address. Once the initial licence has been collected, the entity vacates the premises. The ALS scheme also provides a window of two years from the import of the raw material to fufill the commitments. And predictably, in these two years the companies vanish into thin air and new ones take their place.
Having tried and failed in their attempts to nail the erring companies, DRI officials are now adopting different tactics. They take along textile engineers during the raids on powerlooms and this move has paid off. The textile engineers under panchnama, are able to certify if the particular factory is capable of producing textile from the imported yarn.
Raids on units around Hyderabad have revealed rusted machinery which have nor been used for years, and are in no way capable of producing anything, leave alone textiles. "But when we close one door, another opens" says a frustrated DRI official. Using their clout in the corridors of power, the scamsters have been able to file false complaints and get government agencies to conduct raids on the investigating officers based in Hyderabad. "Why should we get into trouble for doing our job" bemoans a DRI official. "Thanks to their political connections no one can touch them, and they have proved that time and again."
DRI officials say that this scam cannot be shut down overnight and will take months of co-ordinated work between central and state agencies. "What we are now looking is only a tip of the iceberg, and if busted will overshadow other similar scams by a huge margin," adds a DRI official. This can be done by conducting intensive checks of de-bonded warehouses in Hyderabad and other Indian cities. DRI officials suspect that very little of the so-called exports from Export oriented units like the Kandla Free Trade Zone (FTZ) are physical in nature. At the end of the day, it’s all about who will take a lead in closing down the mother of all scams. It depends on whom you ask.
1 comment:
Vikram,
Why dont you write about the scamsters like Narendra Choudary, B.R.Naidu and Gnaneswar who want to start news channels to get credibility?
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