Imported Coal ‘Overvaluation’ by Adani Firms Pits DRI Against CESTAT

The allegations of artificially inflating imported Indonesian coal prices by manipulating invoices and valuation against Adani Power Maharashtra Limited (APML) and Adani Power Rajasthan Limited (APRL) have pitted the Directorate of Revenue Intelligence (DRI) against Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in the Supreme Court (SC).

The DRI has moved the apex court challenging the CESTAT order that quashed the case regarding its over-invoicing allegations, The Economic Times reported.

In 2014, the DRI issued a show-cause notice to APML and APRL alleging the overvaluation of imported coal. The DRI alleged that the import invoices of Indonesian coal were routed through intermediaries based in Singapore, Hong Kong, Dubai and the British Virgin Islands to artificially inflate its price.

The DRI’s adjudicating dropped the notice in 2017 saying that the declared value of coal was correct.

In a June 13, 2019, affidavit filed in the Bombay High Court (HC), the DRI accused Adani Enterprises Limited (AEL) of trying to “impede” its probe against certain Adani Group companies by challenging the issuance of Letter Rogatory (LR) in the court, The Indian Express had reported. 

An LR is sent by a country under the Mutual Legal Assistance Treaty (MLAT) for the assistance of foreign judicial authorities in probing an offshore entity.

The Wire was the first to report in 2018 that the DRI had issued LRs to courts in Singapore, Dubai, Hong Kong, Switzerland and Indonesia to probe cases of import over-invoicing by some of the biggest corporate groups, including the Adani Group, Essar and Reliance Infrastructure.

AEL moved the HC after a Singapore court granted India access to incriminating documents that allegedly contained “clinching evidence” against Adani Group, the affidavit mentioned. AEL claimed the LRs were issued “without any notice and hearing the companies” and “no cognisance of any offence” under the Customs Act, 1962, had been registered by the DRI against the Adani firms in the coal case.

Subsequently, the HC granted an interim stay on the use of LRs by the DRI in September 2018. In February 2019, the DRI moved the SC against the HC stay.

When the DRI appealed the dismissal of the notice, CESTAT, Mumbai, dismissed it in July 2022 observing that its investigation was incomplete and the allegations were based on documents of the branches of Axis Bank, ICICI Bank and Bank of Baroda in UAE that were not certified under Section 138 C (4) of the Customs Act.

In June 2019, Newsclick reported that how APRL gained Rs 2,500 crore at the expense of consumers. An interim order issued by the Appellate Tribunal for Electricity (APTEL) in September 2018 had directed discoms in Ajmer, Jodhpur and Jaipur to pay Rs 3,591 crore to APRL, which owns and operates a 1,320 megawatt thermal power plant in Kawai town, Baran district.

On an appeal by the discoms before the SC, the court modified the amount payable to a little over Rs 2,500 crore in October 2018. The court order has granted rights to the Adani group company to claim this amount from the three discoms, owned by the Rajasthan government, by “passing through” tariff increases to the consumers of electricity.

The All India Power Engineers Federation pointed out various issues that it felt were crucial to the case but were ignored by APTEL. Its intervention was, however, rejected first by the SC in February 2019 and then by APTEL in an order issued on May 27, 2019.

The APRL compensation was granted on account of the higher cost of Indonesian coal, used to run the power plant. Strangely in April 2017, the SC had expressly forbid compensating another Adani power plant, in Mundra, Gujarat, by “passing through” the higher costs of imported coal from Indonesia to electricity consumers.

APTEL’s interim order was given on an appeal filed before it by the discoms against a decision delivered in May 2018 by the Rajasthan Electricity Regulatory Commission, which had found that APRL was entitled to compensatory tariffs due to a rise in the costs of Indonesian coal due to a change in the country’s government policy in 2009.

In September 2020, Newsclick reported that an SC Bench headed by then-Justice AK Mishra, who was to retire three days later, ruled in APRL’s favour in a dispute with the discoms on August 31. The verdict granted APRL “compensatory tariffs” worth more than Rs 5,000 crore and penalties and interest payments of nearly Rs 3,000 crore.

This “price” of Rs 8,000 crore will be borne by electricity consumers in the cities of Jaipur, Jodhpur and Ajmer. This was the seventh verdict in favour of Adani Group companies issued by Benches headed by Justice Mishra since the beginning of 2019.