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India’s Cairn Oil & Gas, a unit of Vedanta Ltd., will spend as much as $4 billion over the next three years to more than triple its production, as high prices make investments attractive.
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The company on November 26, 2021, initiated proceedings to withdraw lawsuits it had filed in several jurisdictions to enforce an international arbitration award, which had overturned the levy of Rs 10,247 crore retrospective taxes and ordered India to refund the money already collected.
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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.
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Post slapping of a Rs 10,247 crore tax demand on UK's Cairn Energy Plc for alleged capital gains made on a 2016 internal reorganisation of its India business, the Income Tax Department had sought Rs 20,495 crore in taxes from Cairn India for failing to deduct tax on capital gains made by its British parent.
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The news comes after the oil and gas producer said in September it was considering undertakings with the Indian government after changes were made to a retrospective tax law at the heart of the row.
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This follows Cairn Energy and Air India jointly asking the court to stay further proceedings in view of the fresh government enacting a fresh law to scrap retrospective taxation in the country.
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The oil and gas producer, which has major operations in the South Asian country, said it was considering entering into statutory undertakings with the Indian government over changes to a retrospective tax law that is at the heart of the row between them.
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Air India was drawn into the dispute after Cairn told a US court that the carrier was an “an alter ego” of the Indian government, and its assets in America could be seized to recover the arbitration amount
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The petition by the airline, which is separate to Indian government's plea in a Washington court seeking dismissal of Cairn's lawsuit to seek confirmation of the arbitral award, said the New York district court lacks jurisdiction to adjudicate a "mere hypothetical question" or one that depends upon contingent future events that may or may not occur.
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Judge Richard J Leon of the US District Court for the District of Colombia has given Cairn time till September 10 to file a response to the government's 'Motion to Dismiss' petition.
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India’s retrospective tax of 2012 was born out of hubris, a twisted sense of sovereignty, egged on by inflated egos of bureaucrats in the ministry of finance, and showed India in poor light as an unreliable investment partner — and damaged the economy
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The Parliament has passed the Taxation Laws (Amendment) Bill, 2021, which withdrew the contentious retrospective tax.
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A three-member international arbitration tribunal that consisted of one judge appointed by India, had in December last year unanimously overturned the levy of taxes on Cairn retrospectively and ordered refund of shares sold, dividend confiscated and tax refunds withheld to recover such demand.
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There is "no likely impact" of the lawsuits on the ongoing disinvestment process of Air India Limited as it is a separate corporate entity with its own management and board, Singh mentioned.
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Settling legacy tax disputes could go a long way in convincing global investors about a stable investment climate in the country
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Moneycontrol understands that, as things stand, any offer of an ‘amicable solution’ between the centre and Cairn Energy has to come from the company. The Centre is of the view that while it will not pay up the sum of $1.2 billion plus interest that Cairn Energy claims, a 'reasonable' figure can be reached at.
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In December 2020, a Permanent Court of Arbitration at The Hague had ruled that the Indian government should pay damages worth $1.2 billion to Cairn Energy, since it had wrongfully applied a retrospective tax demand.
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The government said that the CEO and representatives of Cairn Energy have approached it for discussions to resolve the matter.
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The Indian tax authorities had raised a demand of Rs 2,400 crores in capital gains related to a 2007 transaction.
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It continues to be a mystery why a government that prides itself on its departure from the past in every other area of social and political life, is so committed to fighting this retrospective tax dispute that predates its term and has only brought prolonged litigation.
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There are three major issues the government will face while trying to complete its divestment in Air India -- the timeline for the completion of stake sale, valuation of Air India and its assets, and a potential seizure of Air India’s assets by Cairn.
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Legal experts indicate that the positive options before the country is to go for an out-of-court settlement or to win the appeal filed against the order
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As a country with significant economic attractiveness, India still is in a position to negotiate better terms for fulfilling the terms of the award — including taking up Cairn’s offer to reinvest the amount back in India
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The assets identified range from Air India's planes to vessels belonging to the Shipping Corporation of India, and properties owned by state-owned banks to oil and gas cargoes of PSUs, three people familiar with the matter said. These assets are across several jurisdictions, they said without giving further details.
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A senior government official has told Moneycontrol that Air India will release a statement soon ‘with all the facts’. The person added that the Centre was going ahead with the national carrier’s privatisation plans.
