SC directs Essar Oil to pay up Rs 9,100 cr tax to Guj govt

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SC directs Essar Oil to pay up Rs 9,100 cr tax to Guj govt

In a major setback to Essar Oil, the Supreme Court has upheld the appeal of the state of Gujarat against the company in the sales tax deferral case, reports CNBC-TV18's Sajeet Manghat.

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Excerpts from After the Bell on CNBC-TV18 Watch the full show » Essar Oil BSE | NSE 30/05/12 Are Mutual Funds betting on Essar Oil?

In a major setback to Essar Oil , the Supreme Court (SC) has directed the Ruia's controlled Essar Oil to pay up Rs 9,100 crore in sales tax to Gujarat government after it lost a case seeking tax benefit, reports CNBC-TV18's  Sajeet Manghat.

Essar's argument was that it did not reap any benefits of a government exemption scheme since it had not started production from its refinery in Vadinar, Gujarat, during the qualifying period.

The case dates back to 2008 when the Congress party accused the Narendra Modi government of 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 was not accepted by 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.

Going forward.this event will have a rippling effects in terms of other financing agreements, which Essar Oil has entered into.