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Retrospective Tax | Cairn drops lawsuits against Government of India

As part of the settlement reached with the Government of India to the seven-year-old dispute over levy of back taxes, Cairn has initiated proceedings to withdraw lawsuits it had filed in several jurisdictions to enforce an international arbitration award which had overturned levy of Rs 10,247 crore retrospective taxes and ordered India to refund the money already collected.

December 26, 2021 / 06:12 PM IST
Cairn Energy | PC-Shutterstock

Cairn Energy | PC-Shutterstock

Britain's Cairn Energy Plc has dropped lawsuits against the Indian government and its entities in the US and other places and is in the final stages of withdrawing cases in Paris and the Netherlands to get back about Rs 7,900 crore that were collected from it to enforce a retrospective tax demand.

As part of the settlement reached with the government to the seven-year-old dispute over levy of back taxes, the company - which is now known as Capricorn Energy PLC - has initiated proceedings to withdraw lawsuits it had filed in several jurisdictions to enforce an international arbitration award which had overturned levy of Rs 10,247 crore retrospective taxes and ordered India to refund the money already collected.

Two sources with direct knowledge of the matter said Cairn on November 26 withdrew the lawsuit it had brought in Mauritius for recognition of the arbitration award and took similar measures in courts in Singapore, the UK, and Canada.

On December 15, it sought and got 'voluntary dismissal' of a lawsuit it had brought in a New York court to seize assets of Air India to recover the money due from the government. On the same day, it made a similar move in a Washington court where it was seeking recognition of the arbitration award.

Recognition of arbitration award is the first step before any enforcement proceedings like the seizure of assets can be brought.

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Sources said the critical lawsuit in a French court, which had attached Indian properties on the petition of Cairn, is in the final stages of withdrawal. The paperwork is expected to get completed in the next couple of days.

The attachment of Indian assets, including some flats in Paris, in July used by the Indian government staff had triggered scrapping of a 2012 amendment to the Income Tax Act that gave taxmen powers to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India.

The tax department had used the 2012 legislation to levy Rs 10,247 crore in taxes on alleged capital gains Cairn made on reorganisation of its India business prior to its listing in 2006-07.

Cairn contested such demand saying all taxes due when the reorganisation, which was approved by all statutory authorities, took place were duly paid.

But the tax department in 2014 attached and subsequently sold the residual shares that Cairn held in the Indian unit, which was in 2011 acquired by Vedanta group. It also withheld tax refunds and confiscated dividends due to it to settle part of the tax demand. All this totaled to Rs 7,900 crore.

Sources said paperwork for withdrawal of a suit in the Netherlands too is in the final stages.

Last month, Cairn had said it has agreed to drop litigations to seize Indian properties in countries ranging from France to the UK as it has accepted the Indian government's offer to settle tax dispute relating to the levy of taxes retrospectively.

Meeting the requirements of new legislation that scraps levy of retrospective taxation, the company has given required undertakings indemnifying the Indian government against future claims as well as agreeing to drop any legal proceedings anywhere in the world.

Seeking to repair India's damaged reputation as an investment destination, the government in August enacted new legislation to drop ₹ 1.1 lakh crore in outstanding claims against multinationals such as telecom group Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn.

About Rs 8,100 crore collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn.

Subsequent to this, the government last month notified rules that when adhered to will lead to the government withdrawing tax demands raised using the 2012 retrospective tax law and any tax collected in the enforcement of such demand is paid back.

For this, companies are required to indemnify the Indian government against future claims and withdraw any pending legal proceedings.

Cairn gave such undertaking and is now withdrawing cases.

 
PTI
first published: Dec 26, 2021 06:04 pm
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