New Delhi: With Centre failing to thrash out the dispute, the Supreme Court on Monday agreed to hear Mayawati government's appeal challenging a stay imposed by Allahabad High Court on the Rs 724 crore VAT levied on Reliance Industries Limited for sale of gas in the state.

A bench of justices Altamas Kabir and S S Nijjar granted two weeks' time to the respective parties to file their counter affidavits and posted the matter for final disposal.

The bench passed the direction after senior counsel Krishnan Venugopal, appearing for Uttar Pradesh government and counsel appearing for the Centre, told the court that the tripartite talks between representatives of the Union, UP government and RIL failed to hammer out a solution to the tax dispute.

"Since the Centre has not been able to sort out the dispute, it would be ideal if the matter is taken up for final disposal," Krishnan told the bench.

After the counsel representing the Centre also admitted that no headway could be made on the tripartite talks held this month, the court asked the parties to file their counter affidavits.

At the last hearing on September 19, the bench had asked the Centre to sort out the dispute between the two parties.

In its appeal, the UP government, through Counsel Gunnam Venkateswara Rao, has criticised the July 26 order of the High Court staying the levy for 2009-2010 on RIL's petition without giving an opportunity to file its counter affidavit.

"It is submitted that the impugned interim order is contrary to the settled principle of law that the judicial courts should refrain from passing such interim orders which amount to final in nature, which may or may not be passed after hearing the contesting parties.

"It is further submitted that by the impugned interim order, the Hon'ble High Court had indirectly stayed a huge amount of tax without obtaining any security from the respondent to safeguard the demand created by way of provisional assessment orders passed against the respondent (RIL)," the appeal said.

The UP government said the interim order of the High Court was contrary to the law laid down by the Apex Court which had in the M/S Empire Industries Ltd. Vs Union of
India (1985) case held "governments are run on public funds and if large amount of taxes are held up during the pendency of litigations, it becomes difficult for the governments to run."

According to the state, RIL, which is engaged in extracting and refining petroleum and petrochemical products, was supplying natural gas to various fertiliser companies in Uttar Pradesh and hence the state was entitled to levy VAT on the company in addition to the central taxes paid by the latter.

RIL had taken the plea in the high court that the transaction in question is central sale made by it from Andhra Pradesh and it is not liable to pay local tax (VAT) to the state government.

Agencies