Essar Oil was eligible for a tax deferment incentive of up to Rs9,100 crore for 17 years, however it failed to start production from its oil refinery at Vadinar in stipulated time

The Gujarat government on Monday sealed bank accounts of Ruia-promoted Essar Oil to recover sales tax liability of over Rs8,000 crore from the company. The state government's action follows Gujarat High Court asking it to expedite the recovery process.

Terming the Gujarat government's action as 'surprise' and 'disappointment', Essar Oil, in a statement said, "As a statement of its bonafide intent, Essar Oil has already agreed to pay Rs1,000 crore within 30 days to the Gujarat government towards the sales tax liability. Essar Oil has written to the state government requesting that a Committee be formed which can jointly discuss the modalities of the payment of the balance principal amount of Rs5,169 crore and consider a remission of the past interest of Rs1,932 crore."

"The request for remission of interest amount is based on the fact that the company sought the sales tax scheme benefit only after the Gujarat High Court verdict in its favour in April 2008 and further no interest amount was mentioned in the Supreme Court order," the company said.

Earlier, on 25th June, a division bench of justices PB Majumdar and Mohinder Pal rejected the petition filed by Essar Oil. The bench said, "The state government is directed to expedite recovery process of the entire amount due. We fail to understand that why the company (EOL), which had collected sales tax from its customers and invested the said amount in its own project, ask for such benefit on equitable grounds."

Following the court directive, Gujarat finance department issued a demand notice to Essar Oil for repayment of sales tax deferment benefits utilised by the company.

The state government had put the company's tax dues at Rs8,091 crore, which included interest and penalty.

Essar Oil said it has been writing continuously to the state government to work out an amicable payment schedule after the company lost the case in Supreme Court on the sales tax matter. It had also submitted a detailed payment schedule to the Additional Chief Secretary (Finance) on the 5th April but the submitted proposal was rejected.

The company said it also submitted the payment schedule to the Gujarat High Court on 25th of June when it issued orders asking the state government to recover the monies.
In January 2012, the Supreme Court also rejected Essar Oil's plea seeking sales tax deferment benefits under the Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000.

"The request for remission of interest amount is based on the fact that the company sought the sales tax scheme benefit only after the Gujarat High Court verdict in its favour in April 2008 and further no interest amount was mentioned in the Supreme Court order. Essar Oil is clearly the aggrieved party on this matter despite making investments of over Rs25,000 crore in the refinery and a total of Rs1 lakh crore of investments in the set up in the state of Gujarat," the company said in a statement.