The lowdown on the gutkha scam

It all started with a confidential letter from the Income Tax Department to the Tamil Nadu government in August 2016. The then Principal Director of Investigation (Income Tax), B.R. Balakrishnan, met the then Chief Secretary, P.S. Rama Mohana Rao, and Director General of Police Ashok Kumar, and handed over copies of the Book of Account seized during the searches on the premises of the manufacturer and staff of MDM brand of gutkha in July 2016 in Chennai. The documents contained a list of names, including those of the Health Minister, two DGP-rank officers and others, who allegedly received bribes to the tune of ₹39.91 crore from the gutkha manufacturer to facilitate the storage, transportation and sale of the banned commodity. The police officers in question had, at different points during the period of the scam, served as Commissioner of Police, Chennai.

The Hindu, which had exclusive access to the confidential letter of the Income Tax Department, published a report titled ‘I-T probe unearths payment of bribes to T.N. Minister, officials for gutkha sale’ on June 27, 2017, exposing the scam. The report triggered instant protests by the Opposition parties, and the DMK led a boycott of the Assembly session demanding action against the Health Minister, the DGP and others arraigned in the case.

While the State government maintained that there was no such report from the I-T Department on record, and even filed an affidavit in the Madras High Court (Madurai Bench) taking this position, Mr. Rama Mohana Rao, in an interview to The Hindu, confirmed that he had indeed received the confidential report from the Income Tax Department. He had given it to then Chief Minister Jayalalithaa who, he said, wanted to take action against those involved in the scam. The report was seized from Veda Nilayam, the residence of Jayalalithaa, during a subsequent I-T search in an unrelated case in November 2017.

After the case was referred to the Directorate of Vigilance and Anti-Corruption for investigation, the agency registered a First Information Report against some lower-level officials. DMK MLA J. Anbalagan filed a petition in the Madras High Court, seeking a CBI probe into the scam. Passing orders on the petition, the court transferred the case to the CBI. One of the accused in the case, a Health Department official, moved the Supreme Court against the order. However, the Supreme Court upheld the Madras High Court order.

The gutkha manufacturer, in statements given to the Income Tax Department, admitted to having made sales to the tune of ₹384.38 crore between November 2014 and June 2016. He also offered to pay income tax on the profits. While the Income Tax Department has referred the matter to the assessment wing, the Directorate General of Vigilance (Customs and Central Excise), which also inquired into the matter, collected about ₹9 crore in Excise duty from the manufacturer.