Allahabad High Court Relieves RIL from the Payment of VAT

Reliance Industries Limited (RIL) could finally breathe a sigh of relief when the Lucknow Bench of Allahabad High court declared that the state government cannot levy Value Added Tax (VAT) from private companies dealing with the interstate transactions of natural gas in the state, overruling the state government‘s earlier order advocating the imposing of VAT on trading of natural gas supplied by RIL from Andhra Pradesh to UP via Gujarat.

India ‘s largest private sector enterprise , RIL led by Mukesh Ambani won this case after two years of continuous battling with the court. The court deemed this act to be a blatant abuse of power and ordered the state government to refund the VAT that they have procured from the company during the course of two years. On 27 June 2010, Mukesh Ambani headed RIL had filed a writ petition claiming that the state government was not doing justice by imposing VAT for the sale of gas when it is an interstate transaction (under section 3 of the CST act), considering the fact that the company was already paying central tax.

The government has monetized around Rs.1,100 crore as VAT that has burdened the company excessively, especially at a time when these companies were in need of strong financial reserves , owing to a sluggish economy. The panel of judges comprising of Devi Prasad Singh and Devendra Kumar Upadhyaya corroborated the fact that this transaction was an inter- state one contradicting the Uttar Pradesh Government’s claim that it was an intra- state one.

RIL defended its case mentioning that it sold the D6 gas bought from the offshore reservoir to people in Andhra Pradesh, Gadimoga. Besides, Reliance Gas Transportation Infrastructure Ltd and Gail (India) Ltd owned pipelines were used by consumers for the transportation of this gas to the units in UP . The court realized the significance of interstate trade to augment the integrity of the country and enables the state to have access to necessary goods at reasonable prices and declared that it would be a travesty of justice if RIL is not refunded the tax procured by the state government in the name of VAT act.

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