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VKJ Law Offices of Vinay K. Jain Advocates & Solicitors

DRI detects duty evasion to tune of Rs 15 Cr; M/s Future Enterprises CFO arrested

KOLKATA, JULY 14, 2019: THE DRI sleuths received specific intelligence that M/s. Future Enterprises Ltd. was importing readymade garments from Bangladesh through Petrapole LCS without payment of Basic Customs Duty, availing SAFTA benefit of Customs exemption. By the said exemption notification, Government of India has exempted certain goods from Customs duty when imported into India from countries like Bangladesh, Bhutan, Maldives, Nepal and Afghanistan, provided that the importer proves that the goods, in respect of which the benefit of this exemption is claimed, are of the origin of the country mentioned above in accordance with the Rules of Determination of Origin of Goods under the Agreement on South Asian Free Trade Area (SAFTA), 2006.

In course of investigation, it was found that in the country of origin certificates furnished by the importer in terms of the Agreement on SAFTA, the value of goods (garments) as ostensibly manufactured in Bangladesh, was shown to be much less than the actual value of these goods. Thus, a higher value addition was shown to have taken place in Bangladesh in order to meet the requirement under SAFTA of at least 40% value addition for the goods to be called as of ’Bangladeshi origin’ in order to avail the benefit of duty free imports. This is when the investigation reveals actual value addition in Bangladesh to be lower than 40%.

Investigations further reveal that the Garments were supplied by third country suppliers based in Dubai and Singapore, but were delivered from Bangladesh after some minimal processing, not enough as per the norms for the product to be called as of Bangladeshi origin. The value declared in the Bill of Entry submitted before the Indian Customs was the value charged by the third country suppliers to M/s. Future Enterprises Ltd., whereas, the value mentioned in the SAFTA certificate was the charge paid by the third country suppliers to the Bangladeshi manufacturers. Investigation reveals that the third country suppliers had supplied some raw materials and accessories free of cost to the Bangladeshi manufacturers. Value of such raw materials and accessories was not included in the final total value of the goods manufactured by the Bangladeshi manufacturers, when it should have been. Thus, a lower value of the finished goods was mentioned in the SAFTA certificate of origin to show a corresponding higher value addition. However, when the value of these Free of Cost materials (raw materials and accessories) is included in the total value, then the importer would be ineligible to avail the SAFTA benefit, as the threshold limit of third country content would be exceeded and the value addition that occurred in Bangladesh would fall below the minimum acceptable as per the rules.

The original consignments were imported between the period June 2017 to January 2018. Total FOB value of the goods imported under 83 consignments is Rs. 35.91 Crores and Customs duty liability is Rs. 14.58 Crores. After the difference in value was pointed out to M/s. Future Enterprises Ltd., they tried to mischievously get the SAFTA certificates of origin revised from Bangladesh. M/s. Future Enterprises Ltd. procured 22 revised certificates of origin from Bangladesh which were re-issued more than six months after import of the garments. Only those certifcates were picked up for a fradulent ‘revison’ which accounted more than 90% of the duty liability in order to circumvent the same. However, as per SAFTA Rules of Origin the certificate of origin needs to be issued at the time of exportation or within 3 working days from the date of shipment. In exceptional cases where certificate of origin has not been issued due to involuntary errors or omissions or other valid causes, the Certificate of Origin may be issued retrospectively but no longer than 45 days from the date of shipment. Thus in this case, as the revised certificates were issued more than six months after importation, they have no legal validity and have been issued in clear violation of the presribed rules.

Mr Dinesh Maheshwari, CFO & Executive Director of Future Enterprises Ltd. was responsible for entire finanacial matters including taxtion issues for the company. In a statement recorded by DRI, the Sourcing head of the company responsible for procurement of the goods from Bangladesh / UAE, mentioned that the finanical and taxation matters pertaining to the imports so done were looked after by the Financial and Commercial vertical of the company, which is headed by Mr Maheshwari as the CFO.

When confronted with the fraud details over repeated summons on different dates issued to him by the DRI, each time, Shri Dinesh Maheshwari gave evasive answers such as ‘I will get back after checking’. When asked, why one after the other, over import of 83 consigenments over a period of 6 months, the duty exmeption benefits have been taken by them repeatdely in this incorrect manner, there was no explaination. Therefore, as he appears to be the main peson responsible for the evasion of duty to the tune of Rs. 14.58 Crores by M/s. Future Enterprises Ltd., he appears to be guilty of an offence punishable under Section 135 of the Customs Act and has therefore been arrested under Section 104 of the Customs Act, 1962 on 12th July 2019.

These kind of cases invlolving abuse of Free Trade Agreements directly affect the ‘Make in India’ campiagn of the country and distort the level playing field for genuine Indian manufacturers.

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