The Supreme Court Tuesday directed Essar Oil to pay by July 31 Rs.1,000 crore to the Gujarat government as its dues towards value added tax (VAT) before the freeze on its bank accounts is lifted.

The apex court bench of Justice A.K. Patnaik and Justice Madan B. Lokur gave the direction when Essar Oil made a mentioning inquiring whether it was obliged to pay interest at the rate of 18 percent per annum on the sales tax amount of Rs.6,169 crore under the Gujarat Value Added Tax Act, 2003.

Essar moved the apex court challenging the attachment of its bank accounts and saying that it would pay Rs.1,000 crore within two weeks.

Essar Oil had contended that it was not required to pay interest on the sales tax.

It said that it was not questioning the liability to repay the sales tax amount of Rs.6,169 crore.

Essar had to pay the money to Gujarat after the apex court held that it was not entitled to defer the payment of sales tax as it did not commence production at its Vadinar refinery in the state by Aug 15, 2003.

The apex court order that Essar Oil was not entitled to defer sales tax came in January this year.

The apex court held that Essar Oil was not entitled to the benefit of the "sales tax deferment benefit" under "capital investment premier/prestigious unit scheme, 1995-2000".

The Gujarat government had offered an incentive to Essar Oil under the scheme that it would be entitled to the right to defer payment of sales tax by 17 years if it commenced the operation of its Vadinar refinery by Aug 15, 2003. 

As Essar Oil missed the deadline, the state government contended that it had also missed the right to defer sales tax for 17 years.