The Gujarat Government has demanded that the Essar Group subsidiary Essar Oil repay Rs 6,300 crore ($1.235 billion) plus interest of deferred sales tax. Essar Energy said on Tuesday that it had received the demand notice from the tax authorities in Gujarat, following the January 17 decision of the Supreme Court to overturn the 2008 Gujarat High Court ruling, which allowed Essar Oil to pay the sales tax in deferred instalments from 2021.

Essar Energy said it was in discussions with the Government of Gujarat about a timetable for repayments, and was filing a petition in the Supreme Court, seeking a review of the decision, a process which it expected to take up to 90 days.

“Essar Oil has already made provision for repayment of part of the sales tax deferment liability,” the company said, adding that the liability had been given to a third party. “As of December 31, 2011, the amount assigned is Rs 1,800 crore . This amount is repayable to Essar Oil to meet any payments of the deferred tax benefit in accordance with the terms of the agreement.”

The news earlier this month, hit Essar Energy's share price, as several analysts lowered their price targets. “They say they are confident of covering liabilities with debt and as refinery projects are commissioned, with cash flows. So they don't seem to think that it's a problem though it will involve more debt on top of the already reasonably large debt they already have,” said a London-based analyst.

After being one of the worst performers on the London Stock Exchange in 2011, Essar Energy shares are currently down 30.6 per cent since the start of 2012, as the latest developments were preceded by uncertainty over its sourcing of coal and the resignation of Mr Ravi Ruia as Chairman, following the charges levelled against him and other executives of the Essar Group.

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