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Gujarat High Court declines Essar Oil plea on sales tax
June, 26th 2012

The Gujarat High Court has not accepted the petition of Essar Oil Ltd for direction to the Gujarat Government on repayment of sales tax amounting to nearly Rs 6,300 crore.

While looking at various options including appealing to the Supreme Court, the company is also preparing a warchest of $1 billion (over Rs 5,000 crore) in case it has to meet the sales tax liability immediately or the company is not able to work out a satisfactory payment schedule.

In a communication to the stock exchanges, Essar Oil said that the High Court of Gujarat hearing in relation to its writ petition seeking direction on repayment of sales tax took place on Monday and "the petition has not been favourably considered by the High Court".

The company said once it received the order, it planned to take "appropriate actions", including appealing the decision before the Supreme Court.

Readying warchest

As a contingency step, it was in advanced discussions with the Indian lenders to put in place a $1 billion loan facility. This was for use in case the sales tax liability became payable immediately or that it was not able to negotiate a satisfactory repayment schedule. EOL expected this facility to be finalised shortly.

Essar Oil Ltd had on May 7 filed a writ petition in the Gujarat High Court to seek direction on the repayment installments and interest in relation to its sales tax deferral liability to the Government of Gujarat. It had then stated that the petition would have "no new impact on the companys business" and it had already recognised this liability in its accounts for the quarter ended December 31, 2011.

The company has been grappling with the sales tax issue for a while. Already on January 17, 2012, the Supreme Court had set aside the judgment of the Gujarat High Court by which Essar Oil was entitled to avail itself of Sales Tax Deferment Scheme, that is, to pay sales tax to the Gujarat State Government in deferred instalments.

The company had availed itself of approximately Rs 6,300 crore of sales tax benefit as of December 2011 which was to be paid in deferred instalments, Essar Oil had said.

On April 4, EOL said that the Supreme Court had "disallowed the companys review petition in relation to deferred sales tax". The review petition was to seek review of the Supreme Courts decision on January 17.

EOL has already recognised this liability in its accounts for the December 31, 2011 quarter.

Essar Oil shares were trading at Rs 53.80, a loss of Rs 1.30 with a trading volume of 4.73 lakh shares on the BSE around 11.35 a.m.

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