The Maharashtra sales tax department is probing at least three firms owned by Kolkata-based businessman Pawan Kumar Ruia for allegedly running a hawala racket to reduce sales tax liability, according to a media release.
Kolkata-based Ruia Group is not connected with the Mumbai-based Ruia family, which owns the Esssar Group and has interests in telecom, shipping and logistics, and oil, among others.
The firms under investigation are Dunlop India Ltd, Falcon Tyres Ltd and Monotona Tyres Ltd, all of which make and supply tyres and rubber products.
The investigation branch of the department began its enquiry in January and the sales tax liability on the companies is Rs23 crore. However, the tax liability could increase as the matter is still under investigation, said two sales tax officials. They declined to be identified because the investigation is still on.
The investigation wing of the sales tax department had on 15 January raided the premises of Adhirath Commercial Pvt. Ltd at Malad, a western suburb of Mumbai, that houses five Ruia Group companiesGirish Commercial Pvt. Ltd, Chandani Commercial Pvt. Ltd, Perfect Vinimay Pvt. Ltd, Teerth Traders Pvt. Ltd and Jessop and Co. Ltd. The release did not not divulge further details of the case.
According to officials, all these five firms belong to the Ruia Group. The group took over Jessop in 2003, and Dunlop in 2005.
Ruia could not be contacted because he was travelling. Calls made to his mobile phone were not answered or returned. The groups spokesperson Dhrubajyoti Nandi said he didnt have any comments to offer because Ruia was not around.
Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax.
The modus operandi followed by the companies involved in the racket was to issue sales and purchase bills to each other without actually carrying out the transactions in order to avail of the input tax credit running into huge amounts, said the release, dubbing the system as hawala.
Input tax credit is the amount of tax paid by the dealer on purchases for which credit can be claimed. Input tax credit thus sets off the input tax paid against the amount of output tax plus a value-added tax collected from the buyer.
One of the officials said that the total amount of fake purchase bills issued by the firms is about Rs1,200 crore.
Hawala is an informal money or value transfer system for remitting money in which a financial obligation between two parties is settled by transferring it to a third party.
Typically, a debtor passes on the responsibility of payment of his debt to a third party.
Since hawala is a paperless mechanism for settling international accounts, and operates largely through cash transfers on the basis of trust, it is hard to investigate.
According to its website, the Ruia Group is a fast emerging industrial conglomerate with interest in infrastructure and engineering, tyre and rubber products, sugar and electronics.
The Ruia Group has a workforce of about 9,000 skilled, committed and qualified professionals, the website said. It has manufacturing facilities at Kolkata and Sahaganj (West Bengal), Chennai, Mysore, Kamlapur (Uttar Pradesh) and Hirakud (Orissa), and offices in New Delhi, Mumbai, Chennai, Bangalore and Bhubaneswar.
The group also has offices in New York, Kuala Lumpur, Singapore and Guangxhou (China), and manufacturing units in London and Kuala Lumpur.