QNet 'settles' violations and misreporting when caught to keep the scam running

Admin   |   17 May, 2016   |   1106   |   3980

An explosive set of documents perused by Moneylife have revealed how QNet, the controversial, Hong Kong-based multilevel marketing (MLM) has been caught by the Directorate of Revenue Intelligence (DRI) for falsifying while importing products, but gets away by settling claims. These tactics, along with the tacit support by government agencies has allowed QNet to thrive in India for 12 years despite a series of serious charges, punitive actions and investigations by multiple revenue and investigation agencies including the Serious Frauds investigation Office (SFIO). Documents available with us show how, when cornered by an investigation agency or tax authorities, QNet and all its group companies and associates go for settlement, even accepting the 'guilt' and pay up a huge amount. They used the same technique to get away from strict action in the Supreme Court as well as in a duty evasion case caught by the DRI. The question here is, why is it allowed to continue operations and swindle gullible people despite this vast body of information available with the police and government authorities.

A simple collation of the official actions initiated against QNet makes it obvious that the groups cannot survive without large scale collusion and complicity of powerful officials and policy makers at the highest level.  We will start with the newest information we have gathered through the DRI report — it must be noted that this too is four years old!

In September 2012, the DRI had issued a show cause cum demand (F.No. DRI/MZU/F/09/2010 dated 20 September 2012) notice to Questnet Enterprises India Pvt Ltd and few other importers for evading tax on imports of the company's bio discs. But here too QNet preferred to do a quick settlement by paying all duty along with interest and penalty to escape from the scanner.

The DRI notice says, "It appears that a conspiracy was hatched by Pushpam Appalanaidu (Managing Director of Questnet Enterprises) with overseas suppliers, who were all part of the QNet Group, headquartered at Hong Kong and having group companies in Hong Kong, Malaysia and other countries, to defraud public revenue by undervalued import of Amezcua brand bio discs, which were to be supplied by the group companies of Qnet and which were to be solely marketed and sold in India by Questnet Enterprises India Pvt Ltd. There goods would be imported into India through Indian companies at an undervalued rate for evading Customs duty payable on these Amezcua bio discs. It was also planned that correct description of these Amezcua bio discs would not be declared to the Customs authorities and that they would be declared as 'pharmaceutical glassware' or 'glass coasters'. Questnet Enterprises India Pvt Ltd was also part of QNet group of companies."

"Mohanlal Kesardeo & Co and Ankit Udyog were merely proxy importers. They were neither buyers in normal course, nor owners of the said goods at any point of time. As per the company policy (as set up in the company website and confirmed in statements) QuestNet group does sell such goods to other firms but directly to individuals through online booking with reference of their own individual representative (IR) and after deposit of amount through demand draft. Thus, there was no sales transaction between the overseas supplied. They did not even remit any such value. Thus the so called proxy importers on record, Mohanlal Kesardeo & Co and Ankit Udyog, merely acted as conduits to facilitate fraudulent import to evade duty."

"The goods were also smuggled into the country and supplied to Questnet Enterprises India Pvt Ltd through Heighten Trading. These goods were arranged to be smuggled into the country by Manoj Agarwal of Heighten Trading via Brijesh Shukla, proprietor of Sagar Enterprises and certain unidentified passengers/carriers. There were 2,293 numbers of Amezcua bio discs valued at Rs80.25 lakh smuggled into India," the DRI report says.

Intestinally all the three import-exports agents used by QNet for importing its Amezcua bio discs have shown different description on the items, like pharmaceutical glassware or glass coasters and provided lower values, sometimes even just $1 for the glass discs.

Pushpam Appalanaidu, the then MD of Questnet Enterprises in her statement said, "...in all these cases the importers only facilitated the import of the Amezcua products and the actual transaction was between Questnet Enterprises India Pvt Ltd and the QI group companies based in Malaysia. The goods should have been described as Amezcua bio discs and not pharmaceutical glassware or glass coasters. The correct value of the goods should be either $75 or Euro50."

QNet claims that its Amezcua bio disc “"redefine and harmonise the energy of water, greatly maximising its positive affect on the human body". These and other detailed claims of often miraculous properties have been widely denounced as fraudulent by various scientists, media commentators and watchdog organisations. Critics have noted that the claims are based on thoroughly debunked pseudoscientific concepts such as hexagonal water and that they have never been validated by a peer-reviewed process.

Appalanaidu in her submission told the DRI that since 2005 she was on the board of directors of Qi Ltd, Hong Kong. Qi Ltd is a the holding company and the different subsidiaries of Qi are Qi Comm (based in London), Questnet (based in Hong Kong), Quex Couriers Sdn Bhd (based in Malaysia), Questnet Vacation Resorts (based in Thailand) and some other local companies based in Malaysia. She also told the DRI that Amit Chitale, Suresh Thimiri, MV Balaji and Laxmikant Venkatesan were staff of Questnet Enterprises based at Chennai and MS (Manjunath) Hegde was finance manager employed by the company at their Bangalore office.

Anil Kumar Lohia from Mohanlal Kesardeo & Co, one of the importers used by QNet, also exposed MLM company’s modus operandi for importing the bio discs. In his submission, he said, "Around March 2009, Jessica Lim, who introduced herself as General Manager (sales) handling operations of Kaizen Diamond Tools (M) Sdn Bhd and Quex Courier Sdn Bhd of Malaysia, telephoned him (Lohia) and told that in future, he should dispatch these goods to Questnet Enterprises India Pvt Ltd in part quantities and not the total consignment as he had been doing earlier. Lim told him that henceforth, he should issue two sets of invoices of Mohanlal Kesardeo & Co i.e. one set of invoice would be at the rate of Rs95 per piece and this invoice should be sent directly by courier to Questnet Enterprises India Pvt Ltd at Vasai, Thane (Maharashtra) address. He should prepare second invoice with a higher value of Rs3,500, and send this invoice along with the consignment to the same address. The invoice with higher value of Rs3,500 would be destroyed on receipt of the consignment and only the invoice at Rs95 or Rs100 would be kept on their records."

Manoj Agarwal, Director of Heighten Trading Co Pvt Ltd told the investigation officers that his firm used to locally buy the Amezcua bio and pewter discs from Mumbai-based Sagar Enterprises. ".... I ascertained that Sagar Enterprises had brought these Amezcua bio discs by a passenger/ courier through Mumbai airport without declaring the same to customs thereby evading customs duty, and supplied to Questnet Enterprises India Pvt Ltd under the invoice of Heighten Trading Co," he said in his written statement before the DRI.

When the case reached to the Principal Bench at the Customs & Central Excise Settlement Commission in New Delhi, QNet accepted its guilt and even shown willingness to be penalised besides depositing all the dues along with interest. In its report on QNet's settlement application, the DRI stated, "...the applicant had actively and consciously participated in perpetuating the fraud and they had acknowledged and deliberately mis-declared the description and value of the imported goods with intent to evade duty. They (QNet) had conspired with various other firm for acting as proxy on their behalf for import of said goods, and also effected imports through payment of admitted duty liability as well as interest and submitted that they have no objection on the final settlement of the case on confirmation of demanded duty in full along with interest. Appropriate fine and penalty may be imposed on the applicants."

In the all the three cases filed at Kolkata, Delhi and Mumbai, QNet and its group companies accepted and deposited a duty of Rs2.75 crore and interest of Rs75.90 lakh. This was accepted by the DRI. The Bench, in its order issued on 10 July 2013 then imposed a penalty of Rs10 lakh on Questnet Enterprises India Pvt Ltd and Rs1.50 lakh on Pushpam Appalanaidu.

In February 2016, the special MPID Court rejected anticipatory bail applications of Srinivas Rao Vanka and Magaral Veervalli Balaji, both directors of Vihaan Direct selling (India) Pvt Ltd, Suresh Thimiri, director of Transview Enterprises India Pvt Ltd, Malcolm Nozer Desai, who is 20% stakeholder in Vihaan and Michael Joseph Ferreira, former world champion of billiards and 80% stakeholder in Vihaan.

QI group units were actually banned in 2009 while operating under the names of GoldQuest International Pvt Ltd and QuestNet Enterprises India Pvt Ltd after a Police action. In India, it was registered as GoldQuest International India Pvt Ltd in 2001. Elsewhere, QuestNet Enterprises was registered in November 2004 in Chennai. Between them, they had offices at Bangalore, Mumbai and Hyderabad.

Former Expenditure Secretary EAS Sarma has also written to the PM and the Ministry of Corporate Affairs (MCA) about the need to check the proliferation of Ponzis and binary pyramids which are duping people. Moneylife has been specifically told by the Ministry of Consumer Affairs and the Ministry of Corporate Affairs that they are investigating these scams and plan action/ tightening of legislation. Just because our regulators are sleeping and scams are always discovered too late, if at all, does not make an unregulated scheme legal.

The question, however, is why there is no strict action against QNet and its group companies despite several government agencies and authorities exposing the truth in the company's true nature and business. For how many days, India can allow companies like QNet, who change names like a chameleon, to continue to swindle hard earned money of common people, unhindered.