Directorate of Revenue Intelligence closed case of alleged duty evasion for lack of evidence

The Directorate of Revenue Intelligence (DRI) closed an investigation against Harley-Davidson Motor Company for alleged evasion of import duty in early February, just days before Prime Minister Narendra Modi spoke to U.S. President Donald Trump, documents show.

According to the documents, the DRI had been investigating whether the motorbike manufacturer had underpaid import duties — paying only 10% as against 30% required for importing bikes with pre-assembled engines and gears.

Rate cut

On February 1, the Union Budget had reduced the rate for the pre-assembled bikes — that cost anywhere between ₹5 lakh and ₹54 lakh — from 30% to 25%.

Confirming the closure of the case in early February, a senior government official told The Hindu that the DRI had initiated “suo motu” investigations against the motorbike manufacturer in 2017 for alleged duty evasion.

However, according to the official, the case had been closed for lack of evidence.

“The DRI regularly takes up investigations based on specific intelligence. Harley-Davidson was probed but based on two expert reports from the Indian Institute of Technology [Delhi] and the International Centre for Automotive Technology (ICAT), the DRI came to the conclusion that it had not flouted any norms,” said the official, denying that any pressure from the Prime Minister’s office or the Ministry of External Affairs was responsible for the decision.

An internal note of the Finance Ministry, dated February 7, accessed by The Hindu, also said: “The DRI was not able to establish that in the integrated product, either the gearbox or the transmission mechanisms are fully pre-assembled.”

However, the timing of the closure in the case is significant.

It raises questions about whether it was U.S. pressure that pushed for the closure of the case, particularly given Mr. Trump’s interest in the Harley-Davidson matter.

On February 8, a day after the decision in the case, Mr. Trump and Mr. Modi had spoken to each other, according to a White House Press release. On February 12, the Finance Ministry (Department of Revenue) issued a notification which amended the earlier rate for Motorcycles with “engine or gearbox or transmission mechanism in pre-assembled form” from 30% to 25% and for Harley-Davidsons not in pre-assembled form from 100% to 50%. (Notification No. 26/2018-Customs).

The MEA declined to comment on the Trump-Modi conversation. Details in the case emerged even as a senior U.S. administration official on Friday warned that trade and tariff issues are a “point of friction” between the two countries, who otherwise maintain a “strong” relationship.

Making a particular mention of the Harley issue during a briefing, the official, who did not wish to be named, said, “This [Trump] administration is looking for a free, fair and reciprocal trade with India. And so is seeking to see some of those tariffs [cut] such as on a Harley-Davidson motorcycles that are there. U.S. is determined to find the opportunities to increase trade investment with India and does expect that there will be some sort of reciprocal dealings on the trade issues,” he added.

Foreign Secretary Vijay Gokhale met U.S. Trade Representative Robert Lighthizer and has spoken with Trump adviser on South Asia Lisa Curtis twice, in Delhi and Washington, where the trade issues have come up. The Harley-Davidson case has been a particular thorn in the side of the U.S. government, with President Trump making several mentions of what he considers “unfair trade” by India which levies taxes on the motorcycles while Indian motorbike brands like Royal Enfield’s ‘Bullet’ face no tariffs in the U.S.

In February 2017, Mr. Trump had also complained about the high tariffs on Harley-Davidson motorcycles, during an address to the U.S. Congress.