Indian Oil and Odisha government settle tax dispute
New Delhi: State-owned Indian Oil Corp. Ltd and the Odisha government have amicably settled a tax dispute around the company’s 15 million tonne Paradip refinery, which had threatened to rock the refiner’s future investments in the state.
The state government, which last December threatened to withdraw a promised incentive relating to value added tax (VAT), and the company which argued the move will hit the viability of the mega refinery were since then exploring a compromise deal.
The breakthrough emerged in a meeting among Indian Oil’s management, oil ministry officials led by minister Dharmendra Pradhan and chief minister Naveen Patnaik on Friday, a person, who is privy to the discussions, said on Saturday on condition of anonymity.
Pradhan tweeted on Saturday that it has been agreed that the state government will give an interest free loan of Rs700 crore a year for 15 years to Indian Oil, while the company has agreed to pay VAT. The earlier deal agreed at the time of project implementation was that the state will grant a deferment of VAT payment for 11 years.
“This (settlement) would give a substantial amount of additional revenue (around Rs1,500 crore a year) to the state of Odisha,” Pradhan tweeted.
The settlement is significant considering the potential future investments by state-owned oil and gas companies into the eastern part of the country that the union government is envisaging in order to develop the long neglected region.
The person quoted above said that he 15-year interest free loan, in the nature of viability gap funding (VGF), will be paid from 2016-17. Repayment will start in the 16th year. “A joint petition will be filed in the High Court of Cuttack by the parties informing the court about this agreement,” said the person.
As per the deal, Indian Oil will immediately remit to the state the VAT collected from consumers since 2015-16. The state on the other hand will give loan to the company for the year 2016-17 and for first three quarters of the current financial year by January 2018. The loan is given on a quarterly basis.
Odisha had moved last December to withdraw the promised VAT deferment citing macroeconomic changes (relatively low oil price), which it claimed improved the project’s viability even without the tax break. The company maintained that withdrawing the benefit after the project has been commissioned in November 2015 will adversely affect its viability.