Which companies profiteered from UPA's 80:20 scheme? CAG report bares all

However, the industry body has alleged the UPA government and RBI selected these companies without any background check and they were given the star trading house (STH) and premium trading house (PTH) tags.

Take Bangalore-based Rajesh Exports for instance. The company’s Cochin Special Economic Zone (SEZ) facility was raided by the Directorate of Revenue Intelligence (DRI) for alleged tax evasion, non-payment of customs duty on gold imports and other irregularities.

The company had imported 40,791 kg (between June-November 2013) of the yellow metal, which according to a Comptroller and Auditor General (CAG) report, increased to 68,500 kg (June-November 2014) following the implementation of the 80:20 scheme.

Same is the case with Delhi-based Kundan Rice, another firm which was allowed to import gold under the scheme. The DRI had seized 70 kg gold from the company in 2012 for irregularities. And under the scheme, the company reportedly imported 39,000 kg of gold (June-November 2014), which was much higher when compared to the 4,552 kg (June-November 2013) it imported previously.

Mumbai-based Riddhi Siddhi Bullion, which was termed “repeat offenders” by the DRI, Income Tax Department and Enforcement Directorate, was given the license of a star trading house. The MD of Riddhi Siddhi Bullion was the former president of Bombay Bullion Association and his nephew was arrested by the Enforcement Directorate in one of the biggest hawala scandals.

Similarly, Kanak Exports was also under the scanner of tax authorities in early 2000 and did not import any gold between June and November 2013. However, after it was granted the star trading house license, it imported 24,896 kg.

The Mehul Choksi-promoted Gitanjali Gems imported 400-kilogram gold under the scheme which is not high, as compared to the 300 kg it imported between June and November 2013.

The CAG report further points to Diamond India Ltd (DIL), which had not supplied any gold to exporters in the financial year 2010‐11 to 2012‐13, thus it was not entitled to import gold under 80:20 scheme.

"However, DGFT, New Delhi granted permission to DIL to import 100 kg gold bars, each at Mumbai, Ahmedabad, Chennai, Hyderabad, Delhi, Kolkata, Bangalore and Kochi locations for first two lots, under the 20:80 scheme in contravention of the RBI circular dated 14 August 2013. DIL had imported 700 kg of gold bars. In our opinion, allowing DIL to import gold bars under 20:80 scheme by DGFT was irregular.”

Further, according to the company data firm Tofler, Gopal Jewel had only Rs 35 lakh in paid-up capital, with two directors on board. But the company managed to import a whopping 1,728 kg of gold under the 80:20 scheme.

The import of gold into the country rose significantly after August 2013.

President of the India Bullion Jewellery Association Mohit Khambhoj told Moneycontrol, “At that time gold was selling at a premium rate, which was around 10 to 15 percent higher than actual prices. The total import value of gold was approximately Rs 1 lakh crore as per CAG report. So you can easily calculate 10 percent of this total amount was pocketed by these companies, just by selling the imports in the domestic market.”

Another Mumbai-based jeweller said on condition of anonymity, “These companies were importing 2 tonnes of gold on alternate days. On the other hand, banks were allowed to import just 200 kg gold. These star and premium companies were dominating the market and prices at the time. Moreover, these companies exported lower quality gold than what they had imported and sold the remaining in the domestic market at higher prices.”

The CAG report also says: “Audit scrutiny of the records of THs/STHs showed that PTHs/STHs mostly exported plain gold jewellery, bangles or medallions negligible or no value addition. Even cases of export of 24 carats gold jewellery were noticed. In many cases, plain jewellery was exported within the same day or within 1 to 3 days of receipt of gold.

“Exports were also made to related parties. Some of the remittances were being received the very next day.  The possibility of exporting products without even nominal value addition as plain jewellery by these agencies could not be ruled out. These importers were importing high quantities of gold by repeated exports at very short intervals, so as to maximise their domestic sale entitlement against 80 percent component of 20:80 scheme.

“DRI had also observed that the export obligation was mostly met by exporting machine made plain jewellery viz. bangles and chains which are re‐melted abroad and cast into primary bars for the purpose of re‐import.   Analysis of export data furnished by DG (Systems), New Delhi (Appendix 6) revealed that average monthly export of plain gold jewellery increased 3.5 times after relaxation was brought under the 20:80 scheme. However, internal analysis by the Department showed that the export of plain gold jewellery had actually surged by more than 10 times after the relaxation.”

(Corrigendum: A previous version of this article had wrongly mentioned that Diamond India Ltd was a subsidiary of Gitanjali Gems. The error has been rectified.)