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I've been a journalist for a little over two years now. Four months into my career, I experienced the delight of being sued for defamation by a corporate giant, disowned by my organisation, and eventually pushed out. I have been independent since then.

Thankfully, I was able to find a reasonable arrangement as a freelancer that has made it easier than it could have been.

The offending article can be read here

thewire.in/business/modi-gover

1/n

Covering Adani has become something of my beat, for over two years.

One major thread of this coverage has been of the scandal, in which Adani is one of the main players.

This thread is to cover everything that is so far publicly known about the scam which is worth up to Rs 29,000 crore by a conservative calculation.

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The Directorate of Revenue Intelligence (DRI) is an investigation agency that comes under the Revenue Department in the Finance Ministry. It functions under the Customs Act and investigates import and export transactions.

In December 2014, it was reported that DRI had conducted raids at over 80 locations across the country.

It had found that a number of companies associated with the power sector were showing inflated costs for their imports of coal and equipment.

timesofindia.indiatimes.com/in

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The majority of the suspected imports were of coal from Indonesia.

India imports around 20% of its coal requirement from Indonesia. It increased substantially between 2009-2011 due to a shortage of domestic coal, and the inability of the public sector Coal India Limited to ramp up production.

Coal from Indonesia primarily fed coastal "ultra mega power plants" of capacities upwards of 2000 MW. Companies like Adani, Tata, Essar, and Reliance all own such facilities.

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The way the scam worked was:

Coal shipments would arrive from Indonesia to Indian ports directly. However, the invoices corresponding to those ships would take a "detour" through other countries.

A "middle-company" located in such places as Dubai, Hong Kong, Singapore and others, would be shown as the exporter in the invoice shown to customs authorities.

Another set of invoices the DRI unearthed, showed the sale by the original exporters to the middle-companies. At a much lower price.

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It was not just two sets of invoices that the DRI had found.

It had also found two sets of contracts - between the actual exporter and the middle-company, and the middle-company and the importer - agreeing to sell coal of a particular quality at a fixed rate.

Again, the latter contracts were shared with the customs authorities.

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The DRI also found 2 sets of test reports for each import.

The quality of coal is certified by a testing lab, and their reports are attached the customs documentation. Customs sometimes tests coal of a particular shipment to check if it matches the stated quality.

The DRI found one set of reports that rated the coal imports at a lower level, and the second set at a higher level.

The two quality ranges, corresponded to the two sets of contracts. The companies used the higher sets.

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In addition, the DRI also found comparable evidence to suggest that in a few cases, imports of heavy equipment used in setting up power plants and transmission infrastructure had also been similarly "over-invoiced."

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The way this worked to the companies' benefit was, they were all in different sections of the power generation chain.

At the end, in most of India except in a few cities, electricity is supplied to the public by government owned distribution companies (discoms).
The discoms buy electricity from the generating companies.

The tariff at which discoms by electricity are based on the generator's fuel cost. By charging higher tariffs based on inflated costs, they could recover super profits.

9/n

In all, the DRI alleged, Rs 29,000 crore had been siphoned out of the Indian public's pocket by these companies through

In March 2016, the DRI issued a "lookout" circular to customs authorities across the country, detailing this modus operandi, and listing the companies involved. This is that circular.

It was first reported here, in this story that made the circular public and named the companies for the first time. There were a few big ones.

epw.in/journal/2016/14/web-exc

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They included

- six companies in Gautam Adani's Adani group
- two in Anil Ambani's Reliance ADAG group
- two in the Ruia family's Essar group
- four in the Hyderabad based NSL group
- one in N Srinivasan's India Cements group.

Four public sector companies were named too: National Thermal Power Corporation, Metals and Minerals Trading Corporation, Metal Scrap Trading Corporation and Karnataka Power Corporation.

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As soon as this was out, people realised that this over-invoicing had a bearing on a number of ongoing cases.

Power tariffs are fixed based on bids that companies make for new power projects. In their bid, they specify a tariff based on their expected fuel costs. The lowest quote wins.

Once a power plant is built and ready to supply, its tariff must be approved. This is done by the Electricity Regulatory Commission of the state involved. This body approves and declares every tariff.

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If a tariff has to change for any reason, it must go before the state regulator to be approved.

Companies such as Adani and Essar that were supplying power based on Indonesian coal, had for months then been before the Central Electricity Regulatory Commission (CERC) asking for an increase in the tariff they could charge.

This was because, they claimed, the Indonesian government had passed a law that made coal much more expensive, after they had fixed their tariff based on lower costs.

13/n

Clearly, if the Indonesian coal that this claim was based on was over-invoiced, this should have had a bearing on those cases at the CERC.

The CERC had already granted the increased tariff though, and the case had gone in appeal to the Appellate Tribunal for Electricity (APTEL). The APTEL had also granted the increase, but had ordered the CERC to revise it based on a different formula.

14/n

Putting the "compensatory" tariff on account of the increase in the cost of Indonesian coal, and the over-invoiced coal and power equipment, the scam now added up to over Rs. 50,000 crore.

This story that covered the developments up to this point.
I got to hear that at the first hearing at the CERC that followed the publication of this article in the Economic and Political Weekly, people showed up in protest brandishing copies of the magazine.

epw.in/journal/2016/20/web-exc

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The way a DRI investigation works is specified under the customs act.

When it suspects customs fraud, the DRI is permitted to investigate suo moto, without any other body's sanctions. Once an investigation is complete, the DRI issues a show cause notice (SCN) to the accused party, which then gets a chance to respond and present its defense.

These hearings are conducted by, and the SCN is then ruled upon by an adjudicating authority of the rank of Additional Director General, Customs.

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By August 2016, the DRI had issued SCNs to four companies.

Two Adani group companies had received notices in May 2014 worth Rs 5500 crore. These related to imported equipment.

One had gone to the Essar group in March 2015, worth Rs 2600 crore. This related to imported equipment

One went to a Delhi based company called Knowledge Infrastructure Systems Private Limited (KISPL) in August 2016, worth Rs 12.57 crore. This related to imported coal.

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In October 2016, a new official was appointed to the role of adjudication authority in the DRI's Mumbai Zonal Unit, which had issued these Show Cause Notices. In the months that would follow, this official, K V S Singh would adjudicate on some of these SCNs.

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In December 2016, Singh upheld DRI's investigation in the KISPL case.

However, in August 2017, Singh dismissed the DRI's investigation in one of the Adani cases, worth Rs 3974 crore.

The contrasting decisions were analysed in this article, that also attracted a defamation suit from the Adani group.

theafiles.in/a-tale-of-two-ord

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Both cases went in appeal to the Central Excise and Service Tax Appellate Tribunal (CESTAT).

However, complaints started to emerge out of one of those appeals, the KISPL one.

The DRI alleged that one of the officials on the CESTAT bench was conducting biased proceedings, and wrote the the President of CESTAT seeking that he be replaced.

He wasn't and the CESTAT ruling overturned the adjudication order and exonerated KISPL.

caravanmagazine.in/vantage/dri

20/n

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@Abiriba Amazing thread with lots of information. Thanks for posting it.

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