The more important official route for gold imports has been the NRI channel. It amounted to over Rs 49,806 crore. The scheme became an instant hit after it was introduced as part of the import liberalisation scheme, customs sources say.

The scheme allowed gold imports up to 5 kg on payment of duty at the rate of Rs 220 per 10 grams. The total duty recovered between 1994-97 works out to Rs 2,307.8 crore and it was earned in foreign exchange. The import limit was hiked to 10 kg per NRI. However, while the government earned over $654.34 crore towards import duty, the scheme encouraged large-scale havala transactions that were entered into by NRI importers which, in turn, nullified the impact of gold liberalisation, customs sources indicated.

Hard on the heels of the introduction of liberalised gold import policy, the Gulf-based smugglers and their associates took to thescheme in a big way, sources said. They sent gold to India through NRIs, who acted as carriers, benefitting from the price difference between the domestic and international markets.

The modus operandi was simple: they sought help of the Gulf-based NRIs, mostly semi-skilled or unskilled labourers, for importing gold. Since the scheme allowed NRIs returning home after a six months' continuous stay abroad, most of the Gulf-employed were eligible for imports. These NRIs were offered free airfare, duty amount in foreign currency and some bonus for carrying 42 gold bars, which weighed a little under the permissible 5 kg limit. Each of these consignments was worth between Rs 22 lakh and 24 lakh.

Sources say most NRIs returning home with these consignments were not capable of saving and spending so much on buying gold. However, their NRI status entitled them to bring in gold and pay the duty amount, which was already reimbursed to them before they had set for their return journey to India.

Once they were out ofthe air customs' limits, consignments were handed over to the associates, who, then, sold them in the domestic market for which they were paid in cash. Sources say sellers retained at least 5-12 per cent margin depending on the market fluctuation.

The booty was split after deducting expenses and the rest was sent to the principals in the Gulf. For each dollar transferred out of the country, the havala traders made Rs 1.50.

Even the profits on dollar transfers were split between the Gulf-based gold exporters and their local counterparts. A part of the profit went in to payment of duty and rest for other expenses. Thus while the centre earned import duty to the tune of $654.34 crore, millions of dollars were siphoned off by havala traders, sources said.

They said there were some attempts on the part of customs to challenge some of the NRIs, who were suspected to have acted as the carriers of the Gulf-based syndicates.

But these attempts proved to be futile as local courts ruled that once the customs hadrecovered the import duty in foreign currency, it had no powers to investigate the source of the NRI's fundings for buying such stocks. The government's import policy also favoured the selling of imported gold stocks.

In most cases, it was sold immediately on clearance. This was more significant especially in some southern states and Gujarat. The sellers evaded local taxes, while selling imported stocks without invoices.

Mumbai, which was the main centre for gold imports, was relegated to a marginal-import centre mainly because of the 2 per cent sales tax levied by the state government in addition of half per cent of octroi by BMC.