Artificial Over-Invoicing By Power Cos: Delhi HC Notice To Centre On PIL Seeking SIT Probe

The Delhi High Court on Monday sought to know the Centre’s stand on the allegations made in a PIL that Indian power companies are indirectly involved in over-invoicing to the extent of 400 per cent on the import equipment/coal through their foreign intermediaries which has far-reaching effects, including higher power tariffs.

A bench of Justice S Ravindra Bhat and Justice Sanjeev Sachdeva issued notice to the Centre and the Directorate of Revenue Intelligence seeking their response to the allegations made by the Centre for Public Interest Litigation and Common Cause in the PIL which seeks directions for SIT probe into the over-invoicing of power equipment and fuel purchased by power-generating companies in order to cheat the people and to siphon off funds from public companies.

The matter will now come up for hearing on February 7.

Advocate Pranav Sachdeva, appearing for the petitioners, handed over a note to the court highlighting how on paper Indian power companies (Adani and Essar) import equipment/coal from an intermediary foreign company. Such foreign intermediary company further imports such coal/equipment from OEMs (Original Equipment Manufacturers), based mostly in China.

However, reality is far different.

“In reality, the Indian power companies directly import the coal/equipment from the OEMs. The foreign intermediary company is wholly controlled/ owned subsidiary of these Indian Companies, set up solely for the purpose of generating two sets of invoices for such imports. The invoices generated by the OEMs on the intermediary company reflect the actual price of the imports. The invoices generated by the intermediary company on the Indian Companies are inflated almost to the extent of 400%. The amount of over-valuation is the illegal profit generated by the promoters of the Indian Companies, in the garb of costs, which is siphoned out by their subsidiary intermediary foreign companies, into accounts owned by the promoters situated mostly in tax havens,” Sachdeva submitted.

The PIL alleged that this over-invoicing is to the tune of Rs 20,000 crore.

The petitioners said it was concerned about the increasing trend of over- invoicing by the private companies in the power sector with huge public interest ramifications.

"In the last three or four years, several major instances of such over-invoicing have been unearthed by Directorate of Revenue Intelligence (DRI) in which several prominent and influential
companies are involved,” they alleged.

The petition explained the modus operandi by citing an example. "The OEM of power equipment is in China, but it raises invoice in the name of a company located in say the UAE, and that UAE-based company raises its own invoice by inflating the value on the Indian company. But, Chinese OEM ships the equipment directly to India," it said.

The petition highlighted cases where over 40 companies were involved in over invoicing in a pattern quite common to trade based money laundering.

The same was detected by DRI over a year ago and it had issued a nationwide alert but nothing concrete has been done so far.

Sachdeva also highlighted the far reaching effects of “artificial” over-invoicing which he is not a simple case of over valuation of imports concerning the Customs Department, but is “a practice adversely impacting millions of consumers in the form of higher tariffs since the increase in the inflated costs of coal/equipment is realized from the consumers in the form of higher electricity tariffs”.

“Further, the shareholders of such power generating companies have been cheated of their rightful dividends since these companies artificially reduce profits by showing higher costs. The loans issued by banks for imports, are misappropriated by these companies by disbursing the loan amount to their foreign intermediary, veiled in the garb of inflated invoices, for generation of illegal, unaccounted profit,” he said adding how this was one of the major reason for the alarming growth of non-performing assets in the banking sector.

The Income Tax department is also unable to tax huge profits since such amount is absorbed by the foreign intermediary company, incorporated in tax havens such as the UAE, Mauritius, leading to the ultimate erosion of the tax base and economic resources of India to the extent of crores of rupees, the court was informed.