Essar Oil Challenges $454 Million Interest Claim in Indian Court

Essar Oil Ltd., the operator of India’s second-biggest non-state refinery, challenged a claim by the Gujarat state government to pay 25 billion rupees ($454 million) as interest on sales tax dues.

Essar Oil, controlled by billionaire brothers Shashi and Ravi Ruia, contested the demand for interest in the Supreme Court in New Delhi today, Mukul Rohatgi, a lawyer for the refiner, said without elaborating on how the interest amount was calculated. The company owes 64 billion rupees in sales tax to the Gujarat government, Rohatgi said.

The top court will hear Essar Oil’s plea seeking the waiver of interest and a tax repayment schedule after the company pays 10 billion rupees of the principal tax amount by July 30, the company said in an e-mailed statement.

Essar Oil lost the benefit of deferring sales tax payments after it missed an Aug. 15, 2003, deadline to start production at its refinery at Vadinar. The government of the western state sealed the company’s bank accounts on July 10 after it failed to start paying the sales tax.

Essar Oil declined 1.5 percent to 54.55 rupees at the close in Mumbai. The stock has gained 8.5 percent this year compared with an 11 percent increase in the benchmark Sensitive Index.

The court will reverse the sealing of Essar Oil’s bank accounts after the company makes an initial 10 billion rupee payment, according to the statement. The order was given by a two-judge panel headed by Justice A.K. Patnaik.

The refiner is in talks with Indian banks for a 50 billion rupee loan as a contingency if the sales tax becomes payable immediately or if it is unable to agree to a repayment schedule, the refiner said.

Essar Oil was given an incentive by the Gujarat state government to defer sales tax payment for 17 years on timely completion of the Vadinar refinery. The company has said the plant was delayed because of a cyclone and opposition by a civil society body.

The Supreme Court ordered the unit of London-listed Essar Energy Plc on Jan. 17 to pay the sales tax and rejected a review petition on April 4.

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