Indian Oil Corp (IOC) may drag the Odisha government to court for reneging on its promise to give tax concessions to its Rs 345.55 billion Paradip refinery in the state. Less than two months after serving the first show-cause notice, the Odisha government on February 22 wrote to its single-biggest investor saying it is withdrawing the promised 11-year deferment on payment of sales tax on Paradip refinery products sold in the state.
“We are trying to explain to them that we came to Odisha only based on their commitment to give certain tax incentives. Now, they cannot go back on them. If we don’t succeed the only option left for such will be to take it up legally,” a top company official said.
The Odisha government is basing the withdrawal on two grounds – that the project was delayed by six years and the size of the refinery has been changed to 15 million tonnes a year from the previously agreed 9 million tonnes. “They do not have a case on both the counts. For one, we had way back in 2006 informed them in writing about the decision of doing a larger size refinery together with petrochemical plant,” he said.
As regards delay, the official said the state government should have conveyed its decision of not giving the tax incentives way back in 2009 when the investment decision was taken and conveyed to them. “This clearly is an after-thought. They had in 2004 given us a set of eight tax incentives.
While the VAT exemption was to kick in when the refinery started commercial production, the state government allowed the others including construction time incentives to be availed between 2009 and 2015. We had taken a benefit of Rs 5.50 billion on these count,” he said.
The withdrawal of VAT exemption will cost Rs 20 billion to IOC this year and will progressively increase every year as more petrol and diesel as well as petrochemicals are sold within the state.
Odisha had originally offered the tax incentives to IOC and its then partner Kuwait Petroleum Corp (KPC) in December 1998 to invest in setting up a refinery in the state. These investments were withdrawn in February 2000, leading to the company shelving the project. It restored the incentives and signed an MoU with IOC on February 16, 2004, for providing a set of eight sops.
The state government withdrew the tax incentives in “public interest”, citing 6-year delay in commissioning of the project that was larger in capacity than originally planned.
IOC, however, is quick to point out that the February 16, 2004, MoU clearly allowed change in design, capacity and configuration of the project. The official said the Odisha government was informed about the change in capacity and the delay in construction caused by cyclone, land acquisition and law and order problems.
If the MoU was sacrosanct, the state government should have withdrawn the concessions in 2009 itself, allowing IOC to reassess its investment plans, he said, adding the size of the refinery should not matter as VAT deferment is limited to 2 million tonnes of products sold in the state.