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The Odisha government has withdrawn a promised 11-year value added tax (VAT) break to Indian Oil Corp.’s Paradeep refinery, saying the incentive affects the state’s revenue collections.
The decision to withdraw the incentive dismissing Indian Oil’s 17 January plea that its denial will hit the refinery’s viability, was communicated to the company on 22 February, a person with direct knowledge of the matter said on condition of anonymity.
Being a public sector company, Indian Oil is exploring ways of restoring the incentive and prefers to have a friendly relation with the state government, said another person privy to the development, who also spoke on condition of not being identified.
“A working group with the secretary in the ministry of petroleum and natural gas, chairman of Indian Oil Corp. and chief secretary of Odisha government as members is looking into this matter. A final decision is awaited. We are sure the Odisha government will consider the merits of the case,” said a spokesperson for Indian Oil Corp.
Mint reported on 16 February that if the promised tax incentives are denied, the board of Indian Oil will have to re-examine other pending projects by excluding any tax breaks promised for them to see if they will still be viable.
The company has plans for making over Rs50,000 crore of investments in Odisha, including expansion of the Paradip refinery and a petroleum coke gasification and downstream product manufacturing capacity.
Indian Oil also has the option of invoking a provision in its agreement with the Odisha government of issuing 99-year interest-free bonds which the state has to compulsorily purchase for financing the tax liability.
VAT liability on petroleum products sold in the state was around Rs1,650 crore in 2015-16, out of which Indian Oil claimed Rs180 crore deferment. In 2016-17, the company is claiming a deferment of close to Rs1,500 crore out of the total liability of Rs2,200 crore, considering the improvement in fuel sales, according to the first person quoted above.
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