Last week, the state government had attached three bank accounts of Essar Oil in a bid to expedite the process of recovering sales tax dues of more than R8,200 crore, including interest towards deferred tax liability.
Attachment took place after the Gujarat High Court had rejected Essar Oil's plea seeking to pay the tax dues of R6,414 crore in eight yearly installments and exemption from the penalty and interest of over R2,000 crore.
The HC had also allowed the state government to collect the taxes quickly.
A bench headed by Justice AK Patnaik, in an interim order, asked the company to pay R1,000 crore to prove its bonafides. It also directed the state government not to take coercive action once the payment is made. The matter has been posted for further hearing on payment of interest issue on July 31.
Solicitor General R Nariman told the bench that Essar had collected the tax amount and kept it in fixed deposits.
The allegation was refuted by Essar's senior counsel Mukul Rohtagi by saying that the money collected was spent on the expansion of the project. He argued that Essar was opposing the state government direction to pay the interest. "I do not deny to pay the amount. And I am offering to deposit R1,000 crore. But I have an issue with the payment of the interest," he added.
Essar also submitted a letter from SBI that had given assurance to extend a loan of R5,000 crore to it towards the principal amount. However, Rohtagi said that the loan will disbursed after the issue over interest is resolved.
The company said it was disappointed that it had got no fiscal incentives from the state government despite investing R25,000 crore in the refinery and R1 lakh crore in the state.
"It is not obliged to pay interest under the Act since the amount in question is repayable to the state government, not under any regular assessment of sales tax, but because of the HC judgment which held that the company was not entitled to the benefit of the "sales tax deferment benefit" under 'Capital Investment Premier/Prestigious Unit Scheme, 1995-2000," Essar said in its petition filed through counsel Mahesh Agarwal.
Without questioning the liability to repay the sales tax amount of R6169 crore, Essar said that no interest shall be payable since it has actually worked under the scheme and used the funds for the required purpose.
It said that the Supreme Court, in its judgment last year, had not directed the levy of any interest on the principle amount of R6,169 crore. Seeking payment of sales tax collected for the last four years in installments, it said that company had put in a huge investment in setting up refinery and large amount of sales tax collected had been reinvested for expansion of project.
Besides, it said that the present Debt-Equity Ratio had impaired its capacity to raise further resources to meet the sales tax liabilities immediately and the levy of interest is illegal, unjust and arbitrary.
The apex court in January this year had held Essar ineligible for sales tax deferment under an erstwhile Gujarat Capital Investment Premier Prestigious Scheme. Since the refinery started production later than the specified time, the government had held the company ineligible for the benefit.
In late 1990s, the Gujarat government had issued a policy allowing deferment of sales tax/VAT up to a certain amount, with the benefit capped for a period not exceeding 17 years.
Projects with investment over R1,000 crore could be eligible for the tax benefit. The state had doled out incentives for companies to come and invest in their state, as a result of which, the sales tax which actually accrued to them for nearly 17 years could be paid after 17 years in six equal installments.
Projects of Reliance Industries and Essar Oils refinery were among the eligible investments under the scheme.