Essar Oil down 15% on court order to pay Rs 6,309 cr tax

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Essar Oil down 15% on court order to pay Rs 6,309 cr tax

Supreme Court (SC) said that Essar Oil is not eligible for sales tax benefit. The company has to pay sales tax to the Gujarat State Government of approximately Rs 6,300 crore. However, Essar Energy stock was down 27% in London, reports CNBC-TV18.

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Shares of Essar Oil plunged 14% to 54.24 following news that the Supreme Court (SC) has directed the company to pay up Rs 6,309,crore in sales tax to Gujarat government after it lost a case seeking benefit of a government exemption scheme.

Essar had argued in the court that since it has not started production from its refinery in Vadinar, Gujarat, during the qualifying period, hence it is not liable to pay taxes.

Meanwhile, company shares touched a 52-week low of Rs 44.80. At 09:19 hrs the share was quoting at Rs 49.55, down Rs 8.55, or 14.72%.

However, according to a statement from Essar Oil, "The SC has upheld the stand of the state government as a result of which Essar is not entitled to the deferment scheme. It needs to be clarified that the scheme was not for sales tax exemption in toto, but was only for a deferment of payment of sales tax. In view of the judgment, the payment of tax which was to be made in deferred installments, may face some changes in the timeline."

The case dates back to 2008 when the Congress party charged the Narendra Modi government for giving a tax benefit of 125% to Essar Oil under a New Capital Incentive Policy Scheme of the state which was operational in the 1995-2000 period

That time the ruling government replied saying the company was setting up an integrated greenfield refinery at a cost of Rs 55.44 billion with facilities to process crude of about 9 million MTPA  (metric tones per annum) and hence it would benefit the state as well.

However, this explanation did not augur well with the Congress party which alleged that the state exchequer was losing around Rs 10,000 crore if this tax exemption continued.

Following this controversy, the case reached the Gujarat High Court and Essar won the case in the Gujarat high court in April 2008. But, the state government's industries department appealed against the decision in the Supreme Court.

Meanwhile, on Tuesday, Justice Asok Kumar Ganguly held that the company could not take the benefit of a government exemption scheme since it had not started production from its refinery located in Vadinar, Gujarat, during the qualifying period.