Persons familiar with the development explained the modus operandi. Under this route, money is first transferred to Dubai from Indian units. The official way of over-invoicing imports and illegal routes are used for transferring such payments. The gold is purchased in Dubai, resulting in gold being quoted at a $2 premium there while, otherwise, the yellow metal was quoted at a discount of $1-2.
Subsequently, the gold is converted into coins and exported to the South Korean units of the same players or to a person acting in concert with them in Korea. Even gold bars are exported to them from Dubai. The Korean entity then pays 10 per cent VAT as applicable there on such imports and re-exports coins, which are shown as being manufactured by them, to connected Indian entities in the chain. If gold bars are imported from Dubai or bought from Korea, they get them converted into coins there and re-exported to India under the FTA. They get a refund for VAT paid to the Korean government in 60 days, while Korean entities charge a good premium for making coins for export to India.
One bullion refiner confirmed that he was getting Korean coins for melting and converting into gold bars.
All these processes involve violations of the Foreign Exchange Management Act (FEMA), customs rules, money laundering laws, and the FTA. The FTA norms are blatantly violated as such coins have to be meant for the end consumer. Secondly, the coins are imported under HSN code 7114.19, which actually doesn't allow gold coins. In stead, gold coins are covered under HSN code 7118. Gold coins that are legal tenders or that were legal tenders are covered under this heading. Certainly, what is being imported doesn't fall under any of these headings. Gold coins other than these are generally not classified under any HSN code of the customs manual.
On the condition of anonymity, a prominent person from the bullion trade industry said, "The government should move fast to protect their own revenue loss if they want to ignore the loss to genuine industry players. The government has all the muscles, only will power is lacking." This is true as duty benefits are going to a handful of Indian importers and overseas entities and not to Indian consumers. Another person in the trade said, "Number of persons connected with the gold business travelling to South Korea has increased in recent weeks."