Govt probing palm oil under-invoicing charges

NEW DELHI (The Economic Times) Tuesday Jun 12 2001 - THE GOVERNMENT isinvestigating charges of under-invoicing by palm oil importers asdepartment of revenue intelligence questions dominant players Adani group,Cargill India and Ruchi Soya, while customs officials across the countryhold up consignments brought in at suspiciously low prices.

But these measures may yield little as backdated contracts are notoriouslydifficult to prove and under-invoicing tends to flourish on the bedrock oflegitimate business.

"Investigating agencies may, instead, have to examine more carefully thecircumstantial evidence surrounding edible oil imports from March onwardsto identify those attempting to evade the high post-budget duties on crudepalm oil and RBD palmolein by declaring very low contract values,"industry watchers said.

Complaints of under-invoicing have been brought before the financeministry by industry associations in Kolkata and Mumbai.

Official sources said the raids on Cargill, Adani and Ruchi Soya wereconducted on May 16 because they have been importing large quantities ofcrude palm and RBD palmolein at prices below those of most otherimporters.

While the companies say these contracts were part of their usual tradingoperations, officials are perplexed by the unusual coincidence of contractdates, suppliers and prices in the last two months, which have enabledthese companies to trade palm oil at better margins than others.

According to official data, in Kakinada port, for instance, Cargill Indiabrought in three consignments of more than 4,000 tonnes RBD palmoleineach, priced between $226-230 per tonne c&f, all contracted on February 16from group company, Cargill International Trading.

Another shipment of 6,000 tonnes, also contracted on February 16 at$229.50 per tonne c&f, arrived at Chennai port in March.

Similarly, in Chennai importer Alagendran shipped in RBD palmolein at $217per tonne c&f on February 22 and at $218 per tonne on March 22.

In contrast, companies like Agro Tech Foods, and Foods Fats andFertilizers imported RBD palmolein at prices ranging between $226 and $275per tonne c&f in March at Kakinada.

While the low-priced contracts may genuinely be part of daily trading bycompanies under investigation, it is interesting that prices in Malaysiawere at these levels only between February 13-16. On February 19, theyshot up to $241 per tonne c&f Kandla to peak at $293 per tonne c&f onMarch 19.

"It is true that some trading companies are more savvy than others inpredicting the markets. But to have so many cashing in on such a smallwindow of opportunity shows either extraordinary luck or use of hindsightto date contracts. The sheer number of contracts on a particular date isamazing because if a company is bringing in four consignments a month, thetendency is usually to contract a few times to spread the risk," officialssaid.

Ruchi Soya too has taken advantage of a similar window of opportunity. Ithas imported CPO for as low as $203 per tonne c&f, which arrived atKakinada in April.

However, on the same day, April 6, another vessel Ussuriysk brought in CPOconsignments for other traders contracted at as high as $255 per tonnec&f, raising a question mark on prices. Malaysian CPO prices were at $203per tonne only between January 3-5 and February 15-16.

Most of Ruchi’s low-priced contracts have also been signed with only onesupplier, Avanti Industries of Singapore. When contacted, Dinesh Shaharaof the Ruchi group, who is also president of the Indian ImportersAssociation, was unavailable for comment.

But trade sources say there are several outfits in Singapore set up usingtwo foreign shareholders and a capitalisation of only $2, which arecontrolled by the beneficiary Indian companies, who also become counterparty to trade with these offshore companies.

Meanwhile, industry watchers say, instead of actual contracts, theinvestigating authorities may find it more profitable to examine thegeneral prices and trading scenario in the last couple of months touncover any out-of-ordinary activity.

For instance, there was no parity at all in March and April between theprevailing Malaysian prices and domestic price levels. "Any importer whopaid the actual price the and the duty on it would have had to bear a lossof $30-40 per tonne in the Indian market," said a Delhi-based broker.

Nevertheless, total palm oil imports in March were 3.1 lakh tonnes, and inApril 3.3 lakh tonnes. But they tapered off to 1.9 lakh tonnes in May,once the authorities swung into action.

More significantly, futures trading usually winds down a fortnight beforethe Budget because any rise in Indian duties usually leads to a drop inMalaysian prices. This year, however, even though duties were certain togo up, a large number of futures were signed in mid-February.

If the quantities of such imports are as significant as the industrybelieves, authorities may also need to investigate the mind-bogglingamount of forex being sent through the hawala route to pay for thisunder-invoicing, sources added.