Pay Rs 1,000 cr in tax dues to Gujarat govt: SC to Essar Oil

The Supreme Court on Tuesday directed Essar Oil Ltd to pay Rs 1,000 crore to the Gujarat government towards sales tax/value-added tax (VAT) dues by July 30. If this amount is paid, no coercive steps will be taken by the government against the company, the court said.

The government had last week moved to attach the company’s bank accounts to recover the sales tax liability of around Rs 6,300 crore and penalty and interest of around Rs 2,000 crore. The company has received temporary relief and the matter will be reviewed on July 31.

The Supreme Court had, on January 17, set aside the Gujarat High Court order that permitted the company to avail of the sales tax deferment scheme. Essar’s review petition was also dismissed. Therefore, the company on Tuesday mentioned the matter again before a bench headed by Justice A K Patnaik.

The company had claimed benefits under a capital investment incentive to premier/prestigious unit scheme of the Gujarat government for its Vadinar refinery project. According to the scheme, projects started in remote areas, if completed within the prescribed time, could claim tax benefit of up to 125 per cent of the capital investments made in the project.

Essar was obliged to complete the project by August 15, 2003. But it could not do so due to a cyclone that hit the project area in June 1998, litigation and several other factors. Essar's refinery project became operational only in 2006. The high court had allowed the company’s plea to extend the benefit of the scheme.

In response to the development, the company said: “Today the honourable court has directed the company to pay Rs 1,000 crore to the Gujarat government towards sales taxVAT dues by July 30. Essar Oil had offered to pay this amount in its submission to the court. On payment of this amount, coercive steps already taken by state would be stayed.”

The company also said it was in advanced discussions with Indian lenders with regard to putting in place a $1 billion loan facility.

“Essar Oil is also in advanced discussions with Indian lenders with regard to putting in place a $1 billion (around Rs 5,000 crore) loan facility as a contingency measure for use in the event that the sales tax liability becomes payable immediately or that Essar Oil is not able to negotiate a satisfactory repayment schedule,” it added.