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Essar Oil in talks with banks to repay sales tax liability
April, 05th 2012

Essar Oil is in talks with banks to repay sales tax worth crores of rupees to the Gujarat Government concerning its Vadinar refinery.

The company faced a sales tax liability of Rs 6,300 crore after the Supreme Court set aside a Gujarat High Court order. Essar had filed a petition to review this apex court order, which was dismissed.

On January 17, the apex court had set aside Gujarat High Court order which allowed Essar Oil to avail the Sales Tax Deferment Scheme. The scheme allows firms to pay sales tax to the State Government in deferred instalments.


While stating that this will not have any new' impact on the business, the company said that it is in discussion with the Gujarat Government for finalising the terms of the repayment.

The company also said that it has already provided for this liability in its quarterly accounts for the quarter ended December 31, 2011.

The company has already paid Rs 300 crore of their sales tax liability to the State Government.

Besides, it also has the company board's approval for raising Rs 3,000 crore by diluting promoters' stake.


It all started in 2008. Essar Oil for its Vadinar refinery project claimed benefits under the Capital Investment Incentive to Premier/Prestigious Unit Scheme of the State.

The scheme was operational in the 1995-2000 periods.

According to the scheme, the projects coming up in remote areas, if completed within the prescribed time period, could claim tax benefit up to 125 per cent of the capital investments made in the project

The company was eligible for Rs 9,100 crore (125 per cent of eligible capital investment) as sales tax incentive under the scheme.

According to the scheme, Essar was liable to complete the refinery project by August 15, 2003, to be eligible to claim this benefit.

However, the company could not complete the project in time as there was a stoppage of refinery construction work for around five years on account of a severe cyclone which hit the refinery site in June 1998, as well as a stay imposed by the Gujarat High Court on a PIL filed by an NGO against some other company, thereby stopping construction work in all the upcoming projects in that area.

Essar's refinery project became operational only in 2006 and started commercial production in 2008.

The Gujarat High Court in 2008 had accepted the company's contention that the delay was beyond its control, and extended it the benefit of the scheme.

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