The Supreme Court today dismissed the appeals of Essar Steel and Essar Power and upheld the Gujarat High Court's order holding them liable to pay Rs 1038.27 crore towards electricity duty to the state government.

"We are dismissing the appeals," a bench of Justices A K Sikri and Ashok Bhushan said.

Essar has been seeking electricity duty exemption for its power plant at Hazira, but the Gujarat government had rejected its demand as it sold power to other entities.

The state government had earlier said that electricity duty exemption was only for captive power plants and Essar had not sought prior permission to set up the plant to meet the purpose of selling electricity.

Counsel for Essar group companies had said its plant was a captive power plant which supplied power to its stake holders.

He had said that Gujarat power board had 58 per cent stake in the power plant while 42 per cent belonged to other stake holders and it was very much within permissible limits to supply electricity to them.

Senior advocate C A Sundaram, appearing for the state government, had argued that the company had itself admitted in one of its letters that they were not a captive power plant but an electricity generating unit.

He had said 58 per cent stake in the plant was of the state government while 42 per cent stake was of Essar Steel and the electricity it generated was being supplied to other firms.

Sundaram had said the state government stood by the verdict of the High Court and the company was liable to pay electricity duty.

The state government had first refused Essar group's claims for duty exemption on electricity in 2003 and asked it to pay more than Rs 1,000 crore that was allegedly due.

Essar group had then approached the Gujarat high court which had last year asked the company to pay the electricity duty to the state government.