SC notice to Essar Steel in Rs 480-crore purchase tax case

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New Delhi | Updated: Sep 30, 2016 7:00 AM

The Supreme Court has sought response from Essar Steel on an appeal alleging “deliberate diversion” of natural gas and naptha to its sister concern, Essar Power, for generation of electricity.

Essar Steel, which manufactures and sells Hot Briquetted Iron (HBI) and Hot Rolled Oil (HRC), had purchased natural gas and naptha at concessional rates under the sales tax exemption incentive vide Entry No. 255 of the Notification issued u/s. 49(2) under the erstwhile Gujarat Sales Tax Act, 1969. (Reuters)Essar Steel, which manufactures and sells Hot Briquetted Iron (HBI) and Hot Rolled Oil (HRC), had purchased natural gas and naptha at concessional rates under the sales tax exemption incentive vide Entry No. 255 of the Notification issued u/s. 49(2) under the erstwhile Gujarat Sales Tax Act, 1969. (Reuters)

The Supreme Court has sought response from Essar Steel on an appeal alleging “deliberate diversion” of natural gas and naptha to its sister concern, Essar Power, for generation of electricity.

The diversion for “gaining monetary advantage,” according to the Gujarat government, is a clear cut breach of condition stipulated under the exemption certificate granted to Essar Steel, hence the company is liable to pay purchase tax of R480 crore including penalty.

The state government has challenged the Gujarat High Court’s May judgment that dismissed its appeal and confirmed the January last year’s order of the Gujarat Value Added Tax Tribunal which gave clean chit to the company.

Essar Steel, which manufactures and sells Hot Briquetted Iron (HBI) and Hot Rolled Oil (HRC), had purchased natural gas and naptha at concessional rates under the sales tax exemption incentive vide Entry No. 255 of the Notification issued u/s. 49(2) under the erstwhile Gujarat Sales Tax Act, 1969. The company was accorded incentives between February 1993 to February 2007 up to a maximum monetary limit of R237.59 crore for the manufacture of HRC. Later on, the notification was amended couple of times.

Instead of using it within its factory premises at Hazira in Surat, Essar Steel, without any authority and permission, transported the goods purchased at a concessional rate to its sister concern under the PPA for generation of electricity to be used in the manufacture of HRC, the state government in its appeal filed through counsel Hemantika Wahi said, adding this is despite the fact that power industries are not granted such benefit.

It said that the HC had overlooked the fact that the exemption certificate is granted with certain conditions and once it is established that there is a breach of conditions, the same has to be strictly construed and any breach of the conditions has to be strictly interpreted.

While the Commissioner of Sales Tax had held that no breach had been committed by Essar Steel, the sales tax department had issued various demand notices in 2005-06 for levy of purchase tax of R480.99 crore including penalty for the period 1995-06 on the ground that Essar had vilated the terms of the scheme.

The HC in March 2006 by a common order had exempted the company from depositing tax amount till final disposal of the appeals in respect of HBI plant. With regards HRC factory, the HC had asked Essar to pre-deposit of 50% of the tax amount (R423 crore). Essar has already made the pre-deposit before the HC.

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