SC asks ESSAR OIL to pay RS 9100 cr to Gujarat Govt...
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The Supreme Court today ruled against Essar Oil in a sales tax case and asked the oil company to cough up Rs 9,100 crore to the Gujarat government. The sales tax had been deferred for 13 years.
The court said the company had not begun production in its Vadinar refinery located in Gujarat when it was qualified for tax exemptions, and so it would have to pay the government its due.
Essar Oil had won the case in the High Court but the SC gave a different verdict.
Under the 1995-2000 New Capital Incentive Policy scheme of the Gujarat government companies could get a tax benefit to the extent of 125% of investment in a project. Essar Oil had won the case in the Gujarat high court in April 2008.
The state government’s industries department appealed against the decision in the Supreme Court.Essar Oil had argued that the company failed to start production on time due to the Gujarat earthquake in 1998, something they had no control on. The SC evidently did not buy the point.
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.
The company had provided for Rs 4,800 crore as a part of deferred sales tax and has to provide for additional Rs 4,300 crore from its pocket. Its operating profit (profit before interest, tax, depreciation and ammortisation) was Rs 2,779 crore. The stock naturally reacted sharply to the bad news and was down 7.85 percent.
The SC judgement may now be considered as an event of default under the MRA (Master Restructuring Agreement) entered under corporate debt restucturing — which means, the lenders of Essar Oil can now consider the loan as a case of default and convert their loans into equity if need be.
Essar’s Vadinar refinery is also the subject of an arbitration process in which the company is claiming about Rs3,020 crore from United India Insurance.
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