Essar Oil plunges 13% after Supreme Court sets aside tax benefit

Essar Oil plunged nearly 13 per cent on the Bombay Stock Exchange in a flat market Wednesday.

The stock witnessed tremendous selling after the Supreme Court set aside the judgment of Gujarat High Court yesterday by which it was entitled to pay sales tax to the Gujarat government in deferred installments.

"The Supreme Court has set aside the judgment of the Gujarat High Court by which Essar Oil was entitled to avail of Sales Tax Deferment Scheme i.e. to pay sales tax to the Gujarat state government in deferred installments," Essar Oil informed the Bombay Stock Exchange (BSE) in a filing.

The company had availed of about Rs 6,300 crore of sales tax benefit as of December 2011, which was to be paid in deferred installments, it added.

The court ruled that the company cannot claim the benefit as it had not started the production during the qualifying period.

"It needs to be clarified that the scheme was not for sales tax exemption but was only for a deferment of payment of sales tax," Essar Oil clarified. The company attributed the delay in project to a cyclone and actions of the state government. But that did not prevent investors from selling stocks even at lower levels.
Essar Oil had cash balance of Rs 2,959 crore and the company's debt stood at Rs 14,547 crore as on March 2011. London listed Essar Energy owns 87% in Essar Oil. Essar Energy was trading at the lowest level since its listing in 2010.

Quick facts:

Essar claimed benefits under the new capital incentive policy scheme for its Vadinar Refinery
Essar was eligible for Rs 9,100 crore as sales tax incentive under the scheme (125% of eligible capital investment)
Essar was liable to complete the refinery project by August 15, 2003 (to claim this benefit)
Gujarat’s Industries Department moved SC due to delay in commencement in production
Essar's refinery project became operational in 2006
Commercial production started in 2008
Gujarat High Court in 2008 had extended the benefit of the scheme