The re-look at the policy follows detection by the directorate of revenue intelligence (DRI) of the large-scale misuse of the scheme. In its report to the ministry, the DRI has proposed either removal of the 1600cc condition or enhancement of duty on such imports to check the misuse.

The commerce ministry in 1997 had allowed Indians working abroad to import a car above 1600cc by paying the duty in foreign currency provided the vehicle was in use for one year on their return to the country. The same vehicle can be sold in India without any restriction.

According to a senior revenue department official, the DRI unearthed a major racket during September-December last year by seizing about 80 such foreign-made cars at the Mumbai and Chennai ports. The value of the cars seized was around Rs 15 crore.

The official said that inmost cases, the cars were imported into India immediately on their import into the United Arab Emirates (UAE), without having been used by the importer in the UAE for one year as specified in the public notice.

The importers were obtaining fraudulent registration papers from Road Transport Authorities in the UAE to show that the car was in use for more than one year, he added.

It was found that most imported cars were of an engine capacity exceeding 2000 cc. The reasons for choosing the UAE for the fraud were easy availibility of persons to import cars as per the conditions imposed by the notice and convenience in obtaining documents used.

It was also discovered that persons importing cars from the UAE did not have the means to purchase cars. "This clearly indicated that some racket was working," the official said.

The Road Transport Authorities were conniving for issuing documents to show that the cars were in use for one year.

The person, who ultimately bought the car from the importer paid Rs 1lakh extra to the brokers. It was found that the brokers operating from the UAE were helping the prospective buyers of these cars in India by delivering them the cars at an extra price.

The imported cars were not being used by the eligible importer but were being purchased by a third person, unknown to him.

"Four persons were questioned in this regard and they were let off after paying penalty," the official said.

Following this, the DRI had sounded a red alert at all the ports to check such misuse as it was expected that the operators may move to other ports.

"Despite this, from January to March this year, about 20 cars have been imported in the same manner through ICD Tughlakabad," said the official. He added that the chances of such fraudulent imports taking place at other smaller ports can not be ruled out.

According to the official, a fresh red alert has been sounded at all ports, including ICD Tughlakabad, to check the fraud.

He, however, said that the best solution in this regard would beremoving the 1600cc barrier. "If it was not possible then duty paid on the cars above 1600cc should be hiked so that only genuine importers were able to avail the benefit of the policy," he added.