Sales tax dues: Essar Oil secures Rs 5k crore credit from 12 banks

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Essar Oil on Monday said it tied up a new credit facility from a consortium of 12 domestic banks to provide a credit line of up to Rs 5,000 crore to meet its sales tax liability of Rs 6,300 crore.

The company continues to pursue the matter of repayment schedule of its sales tax liability both legally and with Gujarat.

Essar Oil is confident that with this facility it will be in a position to meet its entire payment obligations of Rs 6,169 crore, the company said in a statement.

The company did not name the lenders but it has been learnt that the consortium is led by State Bank of India along with ICICI Bank, Bank of Baroda, Punjab National Bank, IDBI Bank, and Bank of India among others.

The details of the credit line such as the tenor, pricing etc could not be obtained. The company has already paid Rs 1,000 crore as first installment to Gujarat as directed by the Supreme Court last week.

Essar Oil managing director and chief executive Lalit Gupta said, "the new loan facility will enable us to meet the sales tax liability. Our lenders have continued to be very supportive of the business, which remains well placed given the demand for high value fuels both in the country and internationally."

Despite the huge financial burden due to the tax case being lost, the company said, as previously announced, the completion of the Vadinar refinery phase 1 expansion and the early completion of the additional optimisation project at Vadinar are on course.

Post expansion, Vadinar is expected to deliver significantly enhanced margins and cash flow generation in future to the company.

On July 17, Essar Oil had informed the Supreme Court that it would pay Gujarat the sales tax liability of Rs 6,300 crore in instalments, the first of which will be deposited by July 30.

Essar Oil had approached the apex court against the order of the Gujarat High Court which had refused any relief to it for making the payment in instalments.

The case pertains to the sales tax deferment benefits accorded by Gujarat to investors. The benefit given to Essar Oil was challenged in the High Court which directed recovery of dues and subsequently the company also lost the case in the Supreme Court.

The Supreme Court had in April refused to review its January 17 judgement which quashed the Gujarat High Court order allowing Essar Oil to pay Rs 6,300 crore sales tax liability in deferred instalments and extended the time period of the state's tax incentive scheme.

The apex court had delivered the verdict on the petition by Gujarat challenging the 2008 high court order which had allowed Essar's plea on the issue. Following this on July 10, Gujarat attached Essar Oil bank accounts to recover the dues.

Essar Oil had availed Gujarat's capital investment incentive to premier/prestigious unit scheme 1995-2000 for its Rs 1,900-crore Vadinar refinery in Jamnagar district as a 100 percent export-oriented unit with a capacity of 9 million tonne per annum.