The apex court set aside a Gujarat High Court judgment that had allowed the oil company to defer payment of sales tax to the state government. The state government raised its demand soon after the Supreme Court ruling went in its favour.
The Supreme Court in its judgment ruled that Essar, a unit of London-listed Essar Energy, was not entitled to take the sales tax benefit of around R6,300 crore under the Gujarat Capital Investment Premier Prestigious Scheme and, hence, Essar Oils refinery in the state cannot avail the sales tax/value-added tax deferment benefit.
Essar Oil said in a statement that it has already recognised this liability in its quarterly accounts for the quarter ended December 31, 2011. Essar Oil is in discussion with the Gujarat government for finalising the terms of repayment of sales tax liabilities. Simultaneously, the company is also in discussions with banks for meeting the repayment obligations as may be finalised with the government, the company said.
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 dolled 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 instalments.
Projects of Reliance Industries and Essar Oils refinery were among the eligible investments under the scheme.