CBI ARRESTS VIPUL AMBANI, FOUR OTHERS
The CBI on Tuesday arrested Vipul Ambani, president (finance) of Nirav Modi's Firestar Diamond, in the ~114 billion fraud in Punjab National Bank (PNB), making it the first highprofile arrest in the case, officials said. Four other senior executives of the accused firms were also arrested by the agency.
Assets the government’s central probe agencies claim to have seized from Nirav Modi’s warehouses and showrooms, worth ~57 billion at book value, are likely to yield less than half the amount when disposed.
The fraud is estimated at ~114 billion but recovering even a fourth of this amount is unlikely, said probe agency sources.
The Enforcement Directorate (ED), had conducted searches at around 200 premises of Modi as well as Gitanjali Gems and seized diamonds, gold and precious stones worth ~56.74 billion based on book value.
The income tax (I-T) department has frozen 103 bank accounts and 40 properties of the Modi group of firms but the value of this attachment is not available. Typically, central probe agencies tend to take the ‘book value’ of jewellery to compute the value seized. The book value is the amount entered into the company’s accounts as cost upon which a mark-up is added before selling to the customer.
“The value is often done based on the tag or the book value of the assets, particularly gems and jewellery,” said a senior ED official. He said the value at the time of sale could be much lower than what was mentioned in the books as they suspect over-invoicing as well as passing off low-quality stones at a higher value.
There was a huge difference in the market value of the stock compared to the book value on which the Modi firms had claimed tax deduction, said the I-T investigation report in 2017.
According to the report, physical stock held in special economic zones (SEZs) when valued, revealed a huge difference. “It is averred that the high quality imported diamond is diverted from the SEZ to the domestic markets which is sold in cash and low quality diamonds are exported to associated concerns at high value.”
Adding, “the difference in stock valuation of SEZ was to the tune of ~12.16 billion in 2016-17, which represents the unaccounted sale of imported diamonds diverted to the domestic market.”
Similarly, the DRI, which had first detected Customs duty evasion by Modi and three of his firms, had also established the same modus operandi. According to the DRI, all these entities had allegedly diverted imported, duty-free, high-value diamonds to the domestic market. The DRI then had put a stay on Modi’s export consignments to the UAE, US and Canada. Further, it had issued two show-cause notices to Modi and three of his firms and levied a penalty of ~371 million, over and above the duty evasion.
The agency had then found that cut polished diamonds worth ~1 billion were lying in stock against the declared stock of ~11 billion. Similarly, the entities declared pearl stock of ~1 billion against which the physical stock was only ~40 million.
“When an import is linked with export, the importer doesn’t have to pay any duty. So, for example, if someone imports $1 million worth of gold, with an aim to make $2 million worth of jewellery of it for the export market, the jeweller doesn’t have to pay import duty,” said a senior banker, requesting anonymity.
More often than not, what happens is that the gold, pearl or diamond is imported and sold in the local market, while low quality or fake jewellery is exported (to a shell company incorporated in a tax haven). While importing, the bill is inflated so that the export bill can be inflated too and money transferred through the hawala route. The gold/gems imported are sold in the local cash market, he explained.
The I-T department and the ED have found 200 shell firms in the PNB fraud case. When an investigative agency, therefore, relies on the book value, there is a scope to get misled. Normally, final valuation would take 15-20 days’ time.