The BJP rubbished the allegation, claiming it was intended to "divert attention" as the party bigwigs faced the prospect of being questioned in the AgustaWestland VVIP chopper scam.
The Congress' communications department head Randeep Surjewala alleged the government neglected the interests of public sector Hindustan Aeronautics Limited (HAL) as Dassault Aviation, the french manufacturer of Rafale aircraft refused to transfer technology to it and instead entered into an agreement with Reliance Defence.
He also alleged that the aircraft was being purchased at much higher rates than what was decided after the completion of the tender process under the previous UPA government.
The BJP hit right back, with its spokesman GVL Narasimha Rao claiming that the Congress party was engaging in a "stunt" by raising the Rafale issue as it was scared at the prospect of its top leadership, including the Gandhis, being questioned in the VVIP chopper scam.
He said after the arrest of middleman Carlos Gerosa in Italy last month and his likely extradition to India soon, "the Congress has made baseless allegations over Rafale deal to divert public attention and to cry political vendetta".
"None of these stunts will work and the Congress must be ready to answer who took bribes in the AgustaWestland VVIP chopper deal as the money trail is going to become known after the extradition of Carlos Gerosa," he told news agency PTI.
"Modi government is known for integrity and all its actions are above board, while the Congress party is synonymous with sleaze, corruption and crony capitalism," he said.
In a statement, Reliance Defence Limited dubbed the allegations made against it by the Congress as "baseless and unfounded".
Mr Surjewala said that the UPA government floated a tender on August 20, 2007 for purchase of 126 medium multi-role combat aircraft (MMRCA) for the Air Force and, post negotiations, two of them -- Rafale and Eurofighter Typhoon -- remained in the reckoning.
On December 12, 2012, Rafale was declared L1 vendor, the bidder whose quotation is the lowest, with base price of $10.20 billion (Rs 54,000 crore according to the conversion rate prevalent at that time).
It was decided that of the 126 aircraft, 18 would come in fly away condition and the remaining 108 will be manufactured in India by HAL with transfer of techonology, he said.
After the Modi government was formed in May 2014, Mr Surjewala said, the earlier Request for Proposal (RFP) for purchase of 126 aircraft was cancelled on July 30, 2015, and signed a deal on September 26 the next year for procurement of 36 Rafale fighter jets for $8.7 billion.
Later, he said, Anil Ambani's Reliance Defence Limited tied up with Dassault Aviation for a joint venture for defence production in India on October 3, 2016.
"There is complete non-transparency, flagrant violation of mandatory provision of Defence Procurement Procedure, sacrificing national interest on transfer of technology to PSU HAL and blatant promotion of financial interests of crony capitalist friends of the prime minister have marred the purchase of the aircraft," Mr Surjewala alleged.
The Congress leader claimed that each aircraft would have cost Rs 526.10 crore in accordance with the negotiations under the UPA dispensation. In his allegation, he claimed that each aircraft would now cost Rs 1570.80 crore, he said, adding "huge" loss was being caused to the exchequer.
"The Modi government is indulging in an unforgivable game of compromising national Interest and national security. A huge scam is brewing in the procurement of fighter aircraft," Mr Surjewala alleged.
"Grave apprehensions and claims of insurmountable loss being caused to public exchequer are in public domain with the government maintaining a conspiratorial silence," he said.
Mr Surjewala also alleged that the deal between Dassault Aviation and Reliance Defence Limited did not have the approval of the Union Cabinet, Cabinet Committee on Security and Foreign Investment Promotion Board.
"It is time for Prime Minister Narendra Modi and his government to answer to people of India as to why the government is buying 36 Rafale aircraft at a highly inflated price compared to originally negotiated base price by UPA-Congress," he said.
Reliance Defence said its subsidiary Reliance Aerostructure and Dassault Aviation formed a joint venture - Dassault Reliance Aerospace, after a bilateral agreement between two private companies and "the Indian government has no role to play in this."
Reliance Defence also pointed out that the government policy of June 24, 2016 allows for 49 per cent Foreign Direct Investment in the defence sector under the automatic route, without any prior approval.
"No approvals from the Union Cabinet or CCS were required for the formation of the aforesaid joint venture company under the automatic route," it said, brushing aside the Congress' charge that Prime Minister Modi promoted interests of a group.