In a setback to Essar Oil, the Gujarat High Court today directed the state government to expedite the recovery of the companys sales tax deferral liability of about Rs 8,000 crore, including interest and penalty.

A division bench of justices P B Majmudar and Mohinder Pal rejected the companys petition seeking relief in paying Rs 6,414 crore sales tax liability through annual instalments and exemption in paying interest on the penalty, which the state government calculated at about Rs 2,000 crore.

Considering the totality of the facts and circumstances, this is not the case where we would like to restrain the state from recovering the amount on the ground that the company had appealed to the state government to consider relief under section 41 and 42 of the Gujarat Value-Added Tax Act, the bench said.
On the high court order, Essar Oil stated, Essar Oil is yet to receive the copy of the order. But once this is received, the company plans to take appropriate actions, including appealing before the Supreme Court of India.

Essar Oil is also in advanced discussions with Indian lenders with regard to putting in place a $1-billion (about Rs 5,000 crore) 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 said in a statement issued late in the evening on Monday.

In May, Essar Oil had approached the high court, seeking exemption from interest, along with a directive to the state government to allow it to repay the dues through eight annual instalments from April 2013, under sections 41 and 42 of the Gujarat Value Added Tax Act, respectively.

Today, Essar Oil altered its petition, saying it was ready to pay in six installments, starting this financial year.

We fail to understand that why the company (Essar Oil), which had collected the sales tax from its customers and invested the amount in its own project, asks for such benefit on equitable grounds, the court said.

The petitioner (Essar Oil) should have acted as a good company and refunded the amount to the state government, and not defrauded the state for its commercial benefit, depriving citizens of the state from availing of other facilities, it stated, adding, The state government is directed to expedite the recovery process of the entire amount due.

The state government said even if the company was eligible for benefits under the Capital Incentive to Premier and Prestigious Unit Scheme 1995-2000, it ought to have invested the sales tax amount it had collected from customers in new projects in the state. However, this was not the case. Essar was indulging in its own enrichment, using the money it owed to the state government, alleged an advocate general on behalf of the state. He added the company had delayed the hearing on its application for exemption of interest and repayment in instalments, by seeking extensions.