In a ruling that would end up costing big bucks to Essar, the SC said it would have to pay the Gujarat government Rs 9,100 in sales taxes. The money pertains to sales tax on the Vadinar refinery located in Gujarat. The company has a tax exemption for 13 years, but the Supreme Court said that it had failed to start productionÂ in the period when the tax exemption was applicable, and therefore deserved no exemption.
Essar cited a massive cyclone that hit Gujarat in 1998 as reason for not starting production in time. Apparently the SC did not agree to the argument. The company has already factored in a deferred sales tax of Rs 4800 crore, it will now have to cough up an additional Rs 4300 pay off its sales taxes. The company had made over Rs 2779 crore in operating profits, a big chunk of which will now go toward paying off the tax.
The market reacted sharply to the news, with Essar shares falling 7.85%. The SC judgment is technically a default under the Master Restructuring Agreement (MRA), which means that Essar lenders can ask for converting their money into shares.
Essar had undertaken a major expansion of the Vadinar refinery, investing nearly the same amount of money it will now have to pay in taxes. The 9000 crore expansion took refining capacity from 15 million tons a day to 18.75 million tons a day.