Gujarat High court clears the way for recovery of Rs 8255.47 crore tax dues from Essar Oil

Ahmedabad, 25 June 2012

Extremely bad news coming from the Gujarat High Court for Essar Oil Limited.

The division bench of Justice P. B. Majmudar and Justice Mohinder Pal rejected Essar Oil’s plea for relief in mode of payment and relation in penalties.

The High Court has thus made a way for Gujarat government to take steps to recover the sales tax deferral liability from Essar Oil.

On May 11, 2012 the Division Bench of Acting Chief Justice Bhaskar Bhattacharya had granted relief to the company by asking the state government not to take coercive steps to recover the sales tax deferral liability from the company till the matter was pending with it. Last week the division bench of Justice V M Sahai and Justice N V Anjaria today said ‘not before us’ after hearing the matter for an hour, citing no reasons. Interim order dated 11.05.2012 passed earlier by the Court was therefore extended till 25th June 2012.

Coming down heavily on the EOL, the bench observed that, “The petitioner should have acted as a good company and furnished the amount to the government and not defrauded the state for its commercial benefit.”

“The state government is directed to expedite recovery process of the entire amount due,” it added.

Court also observed that, “”We fail to understand that why the company (EOL), which had collected sales tax from its customers and invested the said amount in its own project, ask for such benefit on equitable grounds.”

Advocate General Kamal Trivedi, while opposing EOL’s petition had relied on the Supreme Court’s January, 2012 judgement where it was held that the company was not eligible for benefit under the ‘Capital Incentive to Premier and Prestigious Unit Scheme 1995-2000’ scheme introduced to provide incentives to companies investing more than Rs 1000 crore in Gujarat for its project in Vadinar in Jamnagar district.

During the course of arguments today, company modified its petition and offered that it was ready to pay in six instalments starting from this financial year.

Earlier this year the Supreme Court had upheld Gujarat government’s appeal against Essar Oil’s tax benefit claims. Subsequently, tax authorities of Gujarat Government had issued a demand notice to EOL for repayment of sales tax deferment benefits utilized by the company.

The state government had put the company’s tax dues at Rs 8255.47 crore, which included interest and penalty.

Essar Oil Ltd (EOL) had filed petition seeking direction that the State government should allow repayment in installments and waive interest in relation to its sales tax deferment liability.

In its petition filed in May, the company has sought waiver from payment of interest and penalty to the tune of around Rs 2000 crore, with regard to its sales tax deferment liability to the Gujarat government. It had also sought directions for the state government to allow the company to make repayment in form of annual installments from April 2013. The state government had earlier rejected this proposal of the company.

The Company had sought exemption from interest and penalty on the sales tax deferment liability on the grounds that the ‘Capital Incentive to Premier and Prestigious Unit Scheme 1995-2000’ scheme of the state government, which it availed, did not have provisions for interest and penalty.

Meanwhile EOL in its statement said, “Essar Oil is yet to receive the copy of the order, but once this is received, Essar Oil plans to take appropriate actions, including appealing the decision before the Supreme Court of India.”

“As previously announced, Essar Oil is also in advanced discussions with Indian lenders with regard to putting in place USD 1 billion 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. We expect this facility to be finalised shortly,” the company further said.