In a setback to Indian Oil Corp (IOC), the Odisha government has slapped a notice seeking withdrawal of fiscal incentives given to the PSU's Rs 34,555 crore Paradip refinery in the state.
In the December 29 notice, Odisha government has asked why the fiscal incentives like 11-year deferment of sales tax on petroleum products sold in the state should not be withdrawn considering that the refinery was delayed by over six years.
Sources said the state government had in February 2004 signed an agreement with IOC to give fiscal incentives for setting up a 9 million tonnes a year oil refinery at Paradip by 2009-10.
However, the project was delayed and started only in early 2016.
The delay is now being cited by Odisha to seek withdrawal of the incentives, they said, adding the state government feels the delay has pushed back the payback time of deferred taxes by few years.
Also, the state government says that the refinery was originally planned for a 9 million tonnes per annum capacity but the actual size commissioned was 15 million tonnes.
Withdrawal of VAT deferment would mean an annual payout of about Rs 2,000 crore on 2 million tonnes of petroleum products sold in the state.
Sources said IOC has replied to the showcause notice saying the size of the refinery should not matter as VAT deferment is limited to 2 million tonnes of products sold in the state.
On delay in commissioning of the refinery, it says the Odisha government made clear its intentions of withdrawing the incentives in 2010 or 2011 itself to enable the company to redraw its plans.
More importantly, even if the refinery was commissioned in 2009-10, the VAT deferment would have been in operation till 2020-21 and there is no case for it ending in 2016-17.
The company says the state government will not suffer any revenue loss as it will pay back the taxes after 11 years albeit without interest on it.
IOC says its board had approved investments only in 2009 and the withdrawal of the VAT concession will reduce by 2 per cent the rate of return it considered for working out the investment.
Sources said the state government was of the opinion that the refinery no longer needs incentives as its profitability had increased due to a higher capacity and low global oil prices.
IOC says Paradip refinery is yet to achieve profitability on a standalone basis and that its investment in higher capacity and downstream petrochemical plants will only lead to higher economic activity and employment in the state.
The higher capacity was needed for setting up two petrochem units at an additional cost of Rs 7,250 crore.
Originally, the foundation stone of the Paradip refinery was laid by the then Prime Minister Atal Bihari Vajpayee on May 24, 2000.
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