Essar suffers $1 billion tax setback, shares plunge

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Essar Energy suffered a major financial blow on Tuesday when India's Supreme Court said the firm could no longer defer payment of more than $1 billion in taxes.

The decision sent the company's shares plunging by around 33 per cent to a record low on the London Stock Exchange, wiping hundreds of millions of pounds off its traded value.

The Supreme Court overturned a lower-court ruling which had allowed the majority-owned subsidiary, Essar Oil, to defer sales tax payments of 63 billion rupees, or over $1 billion, to Gujarat state, the company said.

It had been given a 13-year exemption but the Supreme Court said that Essar had failed to start production in the period when that ruling was applicable, and as a result merited no exemption.

Essar cited a massive cyclone that hit Gujarat in 1998 as reason for not starting production in time, according to media reports.

The Supreme Court 'has set aside the judgement of the Gujarat High Court by which Essar Oil was entitled to avail of the sales tax deferment scheme,' the firm said in a late-evening statement.

Essar Energy's shares were trading down 33.29 per cent, or 56.70 pence, at 116.10 pence in London. The announcement was made after Indian stock market trading hours.

Essar Energy, which seeks to exploit India's fast-growing energy demand and listed on the London stock market in 2010, is owned by the Indian conglomerate Essar Group.

The initial public offering (IPO) raised $1.85 billion and marked the biggest-ever overseas share offer by an Indian company, catapulting Essar Energy into London's prestigious FTSE 100 index of top blue-chip companies.