“This petition has no new impact on the company’s business. The company has already recognised this liability in its accounts for the quarter ended December 31, 2011,” the company said in a statement to the Bombay Stock Exchange.
On January 17, the Supreme Court upheld the Gujarat government’s appeal against Essar Oil’s tax benefit claims. Subsequently, the government issued a demand notice to the company for repayment of sales tax deferment benefits utilised by the company to the tune of Rs 6,300 crore with payable interest. Later, it put the company’s tax dues at Rs 8,255.47 crore, including payable interest.
The Supreme Court said the company could not take the benefit of a government exemption scheme since it had not started production from its refinery in Vadinar during the qualifying period. Essar Oil argued one of the reasons its project failed to start during the required period was a cyclone that hit Gujarat in 1998. It had also filed a review petition in the Supreme Court.
Under the government’s ‘Capital Incentive to Premier and Prestigious Unit Scheme 1995-2000’, Essar was given a provisional ‘premier’ registration, as it was setting up an integrated greenfield refinery with an investment of over Rs 5,500 crore to process crude to the tune of 9 million tonnes per annum.
According to the terms of the scheme, sales tax that actually accrues to companies investing under the scheme for nearly 17 years, can be paid after 17 years in six equal installments.
This means a company can retain sales tax for 17 years and use the same as cash flow. And then, it has to pay back without any interest. According to industry estimates, Essar Oil has already retained Rs 6,500 crore as sales tax.
In its order in April 2008, the high court had curtailed Essar Oil’s deferment benefit by over Rs 1,000 crore on the basis that the state government’s infrastructure development in the region and the surrounding areas of the project, in the interim, could have benefited the company.