The Supreme Court has dismissed the special leave petition filed by Reliance Industries challenging the Centre's decision to withdraw the withholding tax benefit on its $1.3 billion external commercial borrowings in 1995.

In an order dated February 21, the apex court said it was dismissing the petition in the admission stage, thereby upholding the Delhi high court's decision in May last year to reject the company's writ.

When contacted, a Reliance spokesperson said the liability would be only around Rs 25 crore (Rs 250 million) because the company had already prepaid more than one-fourth of the amount.

However, revenue department officials said the liability would be substantially higher.

Reliance counsel Harish Salve argued before the Supreme Court Bench comprising Justice Santosh Hegde and Justice B P Singh that as a consequence of the order, the company was likely to be prevented from utilisation or prepayment of the borrowings, which they were otherwise entitled to.

The judges, however, declined to go into the question of utilisation or prepayment. According to them, the issue had not been raised in the high court earlier.

The court agreed with the contention of Attorney-General Soli Sorabjee, observing that if the company was aggrieved by any action restricting the utilisation and prepayment of the borrowings, it could 'challenge it in appropriate proceedings if permissible by law.'

Reliance officials said they would avail of the opportunity provided by the apex court.

Reliance Industries had made external commercial borrowings in 1995 to finance several projects, including the ones at Jamnagar and Hazira.

The company was exempted from withholding tax on the interest earned by it on the borrowings parked abroad under Section 10(15)(iv)(f) of the Income Tax Act, 1961.

However, the Centre's high-level committee on capital markets decided to withdraw the exemption, saying Reliance Industries had violated the investment pattern stipulated under the Reserve Bank of India guidelines.

The funds raised by companies have to be placed in P1 or P2 instruments, which are gilts, certificates of deposits or bank deposits with a top credit rating.

The finance ministry accordingly issued the relevant notifications withdrawing the benefit, citing breach of conditions. Reliance Industries then moved the Delhi High Court, which dismissed its writ petition last year.

With the Finance Act of 2001, the revenue department constricted the provisions for claiming such exemptions. Such exemptions would only be available for loans raised before June 1, 2001, it stated.