Nine infrastructure firms have allegedly avoided paying customs duty on some types of machinery. They used these machines for private construction projects, but imported them claiming that they would be used for projects financed by organizations such as the United Nations. Machines used in the latter projects can be brought in duty-free.
There is a larger lesson to be learnt here. Regulations should ideally be simple and free of exemptions. Else, they tend to get misused, as this case shows. That was also one of the key assumptions of the economic and tax reforms that were launched in 1991.
India does have a more simple regulatory regime now, but there is still too much scope for dodging and round-tripping. Lower or no duties on some project imports, selective capital controls, complex trade rules on country of origin...the list is a long one. Fewer discretionary rules will help stamp out corruption and lower the costs of doing business.