Odisha Government Withdraws Tax Sops To Indian Oil Corp's Paradip Refinery

Odisha government withdraws tax sops to Indian Oil Corp's Paradip refinery

27-Feb-17

In a surprising move, the Odisha government has withdrawn tax incentives offered to Indian Oil Corp's Rs 34,555-crore Paradip refinery, leading the company to reconsider its plans to invest another Rs 52,000 crore in the state. Less than two months after serving the first show-cause notice, the Odisha government withdrew the promised 11-year deferment on payment of sales tax on Paradip refinery products sold in the state, sources said in Economic Times. The sources said that besides leading to levy of sales tax on 2 mln tons of petrol and diesel sold in the state annually, the withdrawal is threatening viability of investments in downstream petrochemical plants as products from it will be consumed by an array of synthetic fibre and plastic industries and now tax will also be levied on them. The withdrawal will cost Rs 2,000 crore to IOC this year and will progressively increase every year as more petrol, diesel and petrochemicals are sold within the state.

IOC Director (Refineries) Sanjiv Singh said he hoped Odisha will reconsider the decision and restore the incentives that were mutually agreed upon in 2004. The sources said 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 9-mt plant.
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 then IOC director (refineries) Jaspal Singh, according to the sources, in 2006 had written to the state chief secretary informing IOC's decision of considering a larger capacity refinery with the petrochemical plant. They added that the state government did not object to increase in capacity then, and neither in 2009, when IOC finally made the investment decision for just the refinery. If the MoU was sacrosanct, the state government should have withdrawn the concessions in 2009 itself, allowing IOC to reassess its investment plans.

As per the MoU, IOC was to commission the refinery in 2009, but actually did it in November 2015 and the state government allowed IOC to avail of construction-related sops totalling Rs 550 crore all through the six years. On December 29, 2016, the state government had served a show-cause notice on IOC, asking why the fiscal incentives should not be withdrawn, considering that the refinery was delayed by over six years.