Hawala transactions to the tune of Rs 1,500 crore, in connivance with allegedly corrupt customs officers at the Precious Cargo Customs Clearance Centre (PCCCC) at Bharat Diamond Bourse in Bandra Kurla Complex (BKC), have come to light during the last two years of the Covid-19 pandemic through a probe conducted by the Directorate of Revenue Intelligence (DRI). Documents accessed by the Free Press Journal have revealed that rough diamonds were imported at “highly exaggerated value” to siphon off excess foreign exchange overseas to cover the differential cost of imports of other goods like electronic devices and park black money abroad.
In layman terms, the case is of consignment of round-tripped diamonds, which are first imported at inflated cost, then under-invoiced for re-exporting and then imported again at inflated costs, causing excessive loss of foreign exchange to India.
A special task force of the Customs is investigating trade of dubious rough diamonds and precious gems exporters and importers involved in foreign remittance scam.
The DRI probe revealed that diamond traders, in connivance with customs officers, had inflated the imports of rough diamonds from Rs 1 crore to Rs 100 crore and over Rs 1,500 crore was remitted abroad in 18 months.
PCCCC has an approved panel of valuers for identification, testification and valuation purely on an advisory basis. The names of expert valuers, as per the recommendation of Gem and Jewellery Export Promotion Council (GJEPC), is listed for the valuation work involving the import/export clearance of diamonds, precious and semi-precious stones, gold and silver jewellery, pearls and other such items classified under chapter 71 of the Customs Tariff.
Scrutiny of the import panel register maintained by Customs Commissionerate revealed that over 10,000 bills of entries (BoEs) were referred to expert panel valuers for valuation purpose from July 2018 to March 2021. Inspection of over 700 files of referred cases showed glaring irregularities by PCCC officials.
Customs rule stipulates that a complete lot of diamond and precious stone consignment coming from UAE/Hong Kong has to be examined by panel members for 4Cs – Carat, Cut, Colours and Clarities. Under-valuation by panel members was detected only in 21 out of the 12,880 BoEs referred to the panel members in the last three years (FY-2018-19 to 2020-21). “Out of total 21 under-valuation cases, only nine related to cut and polished diamonds, and remaining for the under-valuation of lab-grown diamonds, cut and polished precious stones, gold, rubies, sapphires and silver jewellery,” states the internal report of Mumbai Customs.
“The absence of control mechanism for re-import of cut and polished diamonds is a major loophole exploited by hawala operators to remit foreign exchange abroad by under invoicing diamonds and precious stone consignment,” explained a senior DRI official investigating the foreign remittance frauds.
In the majority of diamond import cases, customs officials referred to the panel members other than the field in which they had expertise in and in some high value cases were referred to valuers other than approved panel members.
As per the law, diamond traders exporting on consignment basis/ exhibition have to submit photographs and test laboratory certificates. The Customs is required to maintain proper records and control register for exported and re-imported items to establish the identity of re-imported goods. Re-import cases increased significantly during the last three years with test check of most dockets of the re-import cases mandatory documents like packaging list of exported items, Shipping bills, details of items re-imported as per packaging list, invoices etc were not available along with the dockets for cross verifications. “It is shocking that the Customs officers at BKC had no control register of exported and re-imported gems and that records have not been maintained in contradiction to provision of rules,” a DRI official said.