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According to an ET report, last week, the agency filed a complaint with its Adjudicating Authority under the relevant provisions of the Foreign Exchange Management Act (FEMA), alleging that the Surat-based entity illegally transferred foreign exchange to foreign shores under the “garb of imports from the special economic zone”.
The complaint says that the agency has detected illegal transfers of Rs 3,437 crore so far. However, people familiar with the matter suggest that the total amount of alleged illegal transfers is likely to reach Rs 5,000 crore.
The complaint has been filed against M/s. Sharnam Jewels Limited (SJL), LLP, its partners, and others. Acting under FEMA, the ED has also seized properties, including plots, flats, and bank balances worth Rs 29.9 crore.
The ED has alleged that the majority of the foreign remittances have been made to Hong Kong. The complaint, which ET has reviewed, alleges that the Surat-based entity “no infrastructure to manufacture gems and jewellery running into thousands of crores”.
FEMA Violation Case
In December of the previous year, ED officials conducted searches at the premises of Sharnam Jewels. The agency has alleged that Sharnam Jewels claimed to have a closing stock of Rs 520 crore. “However, on physical verification during the search only a meagre stock of Rs 19 lakh was found,” the complaint alleges.
ED has accused SJL of employing a distinctive method to illegally transfer funds abroad by exploiting the privileges granted to SEZs. According to the agency, SJL strategically selected SEZs due to the lack of stringent monitoring by customs authorities on duty-free imports, enabling those seeking to transfer illicit funds out of India to do so under the guise of payments for fictitious imports to SEZs.
The complaint further alleges that SJL “was showing highly over invoiced imports of fake uncut diamonds and other precious metals and stones mostly from Hong Kong-based entities namely Sigma Diamonds Limited, Diarect Marketing Ltd; B S enterprises, Hast Impex, HS Exim Co, DVL Limited”. The ED claims that between 2021 and 2023, a total of $503.4 million (Rs 4,000 crore) was remitted under the pretext of these fraudulent imports.
Moreover, the ED’s complaint under FEMA states that the payments to these Hong Kong entities were made in foreign currency within a short timeframe of 7 to 30 days from the date of import. Investigations have revealed that the Hong Kong-based companies are shell entities, with most of them having been struck off, possessing minimal share capital, and operating from the same address, raising red flags about their legitimacy.
ED has filed a complaint against SJL alleging that the firm exported fake gems and jewellery out of the SEZ in compliance with SEZ Rules. However, SJL failed to bring back the mandatory inward remittances to India, amounting to $431 million (approximately Rs 3,500 crore) between 2021 and 2023.
According to the complaint, “SJL made exports to Hong Kong-based entities namely Chi Kar Trading Co; Daehan Trading Limited, DJS International, DVL Limited, Faith Jewellery Limited, Fortune Trading, Global Star, Mini International, My Worldwide Limited, Premier Trading Limited etc. These entities are also found to be shell entities. No efforts were made by the partners of SJL to bring back forex into India for which they have shown exports”.
When confronted with the discrepancies related to the alleged fake imports and forex transfers, the partners of SJL and other linked persons were unable to provide a satisfactory explanation. The ED conducted a thorough investigation, analyzing more than 750 bank accounts and over 250 entities to establish the money trail.
The agency further alleges that SJL received funds from Indian entities engaged in various businesses such as oil, heavy metals, iron & steel, and scrap, which is in contrast to SJL’s claimed business of manufacturing gems and jewellery.
The complaint states that “SJL did not actually sell any goods or services to Indian entities for which it received payments through a complex web of transactions which in turn SJL sent outside India in the garb of fake imports.”
