CUS CIR NO. 92/2003 DATE 17/10/2003

Large scale misuse of Drawback Scheme on exports of cotton knitted garments through ICDs in Tamil Nadu by willful and gross over-invoicing and manipulation of documents by dubious exporters of garments - Circulation of modus operandi adopted - regarding.
Commissioner of Customs, Trichy, has informed that they have come across certain cases of fraudulent exports of cotton knitted garments where the exporters indulged in over-invoicing of goods to avail of higher unintended duty drawback benefits by adopting the following modus operandi.

2. Some dubious persons floated companies in the name of known persons who hail from economically poor families and are illiterates. Such persons (Benamis) were lured by the fraudsters to become namesake owners of such bogus companies (“The exporters”) in whose name the shipping bills were filed. In most of the cases, it was noticed that such “exporters” did not have factories and they were only merchant exporters. The fraudsters obtained I.E. Code, got PAN No. and opened bank accounts in the name of front persons. They arranged purchase orders/contract for the exports of garments at exorbitant value and the exports were always made to non-quota countries like Singapore, Dubai and African countries. The purchase orders were cryptic and vague and did not contain size, specifications, technical characteristics and other details. They only mentioned the rate per piece and the quantity. The unscrupulous elements procured readymade banians of inferior quality from the market and declared the f.o.b. value almost 15 to 20 times the present market value of the garments.

3. Officers of the Special Investigation Brach at the Gateway Ports of Cochin and Tuticorin had detained and re-examined some consignments, on the basis of specific intelligence received from the Trichy Customs Commissionerate. The exporters sensing trouble, fabricated /manipulated letters, addressed to ICDs to give the impression that the lower value had been accepted at the time of assessment, examination and stuffing of the goods. Also, on occasions, subsequent to the detention of the cargo at the Gateway Ports, the f.o.b. value declared on the Shipping bills were revised downwards in order to reflect a far lower f.o.b. value for claiming drawback. Endorsements to this effect were made on all the copies of the Shipping Bills available in the ICDs except the transference copies of the shipping bills (which is sent along with the consignment at the Gateway Ports). This clearly reflected manipulation of the documents to evade penal action and also to get drawback sanctioned on the original inflated value declared in the Shipping Bill, from the ICDs.

4. During investigation, it also came to light that for such exports GR forms are not being filed with the banks. Consequently, such transactions do not get reflected in the records of the Reserve Bank of India as well as in the XOS(Exports outstanding) statements sent by the RBI to the respective ports to monitor the foreign inward remittances. These exporters do not maintain any books of accounts for purchase/sale, etc. in spite of huge volume of trade both in domestic purchase as well as exports. Also, such exporters open their accounts in foreign banks and private sector banks and withdraw money mainly in the form of cash while the deposits are through drawback cheques. This is owing to the fact that these banks, unlike the nationalised banks, do not insist on filing of shipping bills and GR forms, for foreign inward remittances.

5. All the field formations are hereby directed to be alert and vigilant to ensure that unscrupulous elements do not avail of higher unintended duty drawback by resorting to the above mentioned modus operandi.

Yours faithfully,

Sd/-
(S.S. Renjhen)
Joint Secretary to the Government of India

F.No.609/133 /2003-DBK

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