Choksi and his business partner uncle Nirav Modi are two big-name jewelers accused of defrauding India's second-largest state bank, PNB, of nearly $2 billion by securing credit from overseas lenders through bogus guarantees.
Bankers gleefully showered loans worth thousands of crores of rupees on Mehul Choksi's Gitanjali Group even after the Union Finance Ministry declared two of its firms as tax defaulters with "no assets", DNA has learnt. The two firms have caused the government a revenue loss of Rs 300 crore.
Choksi and his business partner nephew Nirav Modi are two big-name jewelers accused of defrauding India's second-largest state bank, PNB, of nearly $2 billion by securing credit from overseas lenders through bogus guarantees.
Choksi's Gitanjali Gems Ltd (GGL) and Gitanjali Export Corporation Limited (GECIL), later merged with Gitanjali Gems, have appeared on a tax defaulters' list under the head of 'no assets' for non-payment of Rs 251.22 crore and Rs 64.73 crore, respectively.
The Finance Ministry raised tax demands after rejecting exemptions that had been claimed on bogus purchases and through misuse of Special Economic Zone norms.
"When recovery process does not work, we put companies under the category of no assets," said a top Finance Ministry official, who wished to be anonymous.
Gitanjali Gems contested these tax demands in its annual report-2016, saying "it has good chances of succeeding in the appeal".
Tax documents, seen by DNA, say, "The (tax) additions were on account of disallowance u/s 14A, 10AA, bogus purchases TP (transfer pricing) adjustment, protective additions and 36(1)(iii)".
Tax disputes started when Gitanjali Gems failed to pay Rs 5.88 crore for the assessment year 2006-07. The demand for recovery went up each year till 2013. The tax department made the additions for the past seven years of dues and declared Gitanjali Gems as defaulter under the category of 'no assets' in March 2017.
Investigations by multiple agencies into what has been dubbed India's biggest bank fraud that started unravelling last month have led to the arrest of 21 people, including some bankers. The whereabouts of both Choksi and Modi are unknown.
The tax department attached assets worth Rs 1,200 crore of Gitanjali Group along with nine bank accounts of the group and its promoter Choksi.
When DNA asked about the recent attachment of "no assets" Gitanjali Gems, a top Finance Ministry official snapped, "Why do you need to know that?".
"Recovery is the ongoing process in such cases", the official said. He added, "To avoid tax dues, some taxpayers hide and manipulate their accounts and assets details, so that we are not able to recover".
Email to Choksi did not elicit any immediate response.
Tax department documents reveal that Gitanjali Gems, in its submission, accepted its "weak financial position" due to increasing debt burden.
The company acknowledged it was "facing severe shortage of funds resulting in working capital crisis, its immovable properties are pledged with its bankers, fixed deposits under lien, debtors and inventory is hypothecated to the bankers to the extent of working capital limit".
In 2015, Gitanjali Gems argued to the tax department that its profitability tumbled in the last three financial years from Rs 264.79 crore to Rs 18.54 crore.
In spite of the weak financial position, public and private banks kept showering loans on Gitanjali Group through bogus guarantee papers (LoUs) till 2017.
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