Three top executives of MRO-TEK Ltd, the Bangalore-based leading networking company were arrested and sent to judicial custody on Wednesday by the Directorate of Revenue Intelligence for evasion of customs duty to the tune of Rs 8.4 crore (Rs 84 million) on import of telecom equipment and hardware components from Israel and other countries.

The accused, chairman and managing director S Narayanan, joint managing director G M Nandi, and chief financial officer R Ramaswamy, were produced in the Economic Offences Court, Bangalore.

After hearing the remand application, filed by the Directorate of Revenue Intelligence, presiding officer S M Khazi released them on bail for a personal bond of Rs 100,000 and a cash surety of Rs 20,000.

Pronouncing the order, Khazi laid down four conditions for their release on bail:

The accused will report to the office of the Directorate of Revenue Intelligence daily for the next 15 days, when the case is expected to come up for hearing.

They will not leave the country without the consent of the Economic Offences Court.

Cooperate with the investigations being conducted by the DRI and the court officials, and

They will not tamper with either the documentary evidence or witnesses.

During the course of investigations, the revenue intelligence officials also seized massive data and voluminous documents from the listed company's premises located in the city and its manufacturing facility in the Electronics' City on the outskirts of Bangalore.

Revenue intelligence sources told rediff.com that the three executives were arrested for failing to comply with the DRI orders to pay customs duty evaded by the company and its subsidiary, RAD-MRO Manufacturing Ltd, a joint venture with RAD Data Communications of Israel, to the tune of Rs 6.7 crore (Rs 67 million) and Rs 1.7 crore (Rs 17 million) under section 28 of the Customs Act, 1962.

The evasion was detected during the course of investigations and search launched by the DRI since January this year. The goods, which were wrongly declared in terms of value and quantity were in the order of Rs 13 crore (Rs 130 million) and Rs 1.3 crore (Rs 13 million) respectively, for liable to confiscation under the provisions of section 111 (m) and section 111 (l) of the Customs Act, 1962.

Senior revenue intelligence officer R Rajeevalochan told rediff.com that the company adopted different modus operandi to evade duty on import of equipment and components by declaring only partial value.

"The company created false documents to show that software, which is exempt from customs duty, was imported. The modus operandi was to declare the imported items as repaired and returned to avail the duty benefit, liable on repair charges. The goods that were declared as repaired and returned were, in fact, new items, which ought to have paid duty.

"To facilitate customs clearance of the so-called repaired items, the company fudged and forged the documents such as invoices of foreign suppliers," Rajeevalochan stated.

Investigations conducted till date revealed that the three accused masterminded the modus operandi.

The officials admitted the lapses, and remitted Rs 1 crore (Rs 10 million) towards the liability in the first offence and Rs 40 lakh (Rs 4 million) in the second offence.

"The accused officials are punishable under section 135 (1) (a) and (b) (ii) of the Customs Act, 1962. A show-cause notice has been issued in respect of the cases demanding payment of the evaded duty," the official disclosed.

Though the company approached the Customs & Central Excise Settlement Commission in Chennai to settle the first evasion (of Rs 6.7 crore), they have committed an identical offence for the second time.

Though the three executives were not available for comment, a company source told rediff.com on Wednesday night that they had no intention to evade customs duty.

"Since the case is sub-judice, we cannot comment now. In fact, we went to the Settlement Commission and the appropriate authorities.

"During the last six months, executives of the company have been cooperating with the Directorate of Revenue Intelligence in the investigations, and have been available for any clarification and information sought by the authorities concerned," the source added.

MRO-TEK raised Rs 23.8 crore (Rs 238 million) in October 2000 through the book-building route with a premium of Rs 100 on a share of Rs 10 each.

But the public-listed company's scrip was quoting at Rs 15.89 on the Bombay Stock Exchange in Wednesday's trading.

The company posted a revenue of Rs 96.53 crore (Rs 965.3 million) for the fiscal year 2002-03 against Rs 84.87 crore (Rs 848.7 million) posted in the previous fiscal (2001-02), registering an increase of 15 per cent.

The net profit, however, dipped by 53 per cent to post Rs 3.24 crore (Rs 32.4 million) for the fiscal year under review against a high of Rs 6.94 crore (Rs 69.4 million) declared for the previous fiscal year (2001-02).

The company did not also declare dividend to its shareholders for the year ending March 31, 2003. The public holds 63 per cent of the paid-up capital.

More over, no provision was made in the accounts for the year under review towards the payment of the evaded customs duty, DRI officials claimed.