SC allows Essar Oil to pay Guj tax in 8 tranches

The Supreme Court on Thursday allowed Essar Oil to pay its pending sales tax to the Gujarat government in eight quarterly instalments, starting from January 2013.

This has come as a major breather for the company as the sales tax case had been weighing heavy on the company’s balance sheet since the start of the current year.

The apex court also cut the interest amount to 10% per annum from the 18% per annum as demanded by the state government, effectively disallowing the state to charge an interest of Rs1,800 crore from the company.

On January 17, 2012, the SC had set aside a judgement by the Gujarat High Court, which had allowed the company to avail sales tax deferment benefit under the capital investment incentive to Premier/Prestigious Unit Scheme, 1995-2000. The SC had directed the company to cough up Rs6,309 crore as pending dues.

Under this benefit scheme, Essar Oil, which was building a 9 million tonne refinery at Vadinar, was eligible for a tax deferment incentive of up to Rs9,100 crore for 17 years if it was able to start commercial production from the unit within a stipulated time.

Essar Oil had to complete the refinery by April 2003, but failed to do so due to a cyclone that hit the refinery site in 1998 and later due to a pending case filed by an NGO against part of the construction, claim company  sources. After the issues were resolved, Essar Oil restarted construction in 2004 and completed the refinery in November 2006. But the state refused to consider it under the eligible parties for sales tax deferment.