Cairn Energy Agrees To Indemnify Indian Govt; Drops Litigation for Rs7,900 Crore Tax Refund
Moneylife Digital Team 09 November 2021
Cairn Energy PLC of UK has decided to drop litigation to seize Indian properties abroad to recover the Rs7,900 crore tax refund due to it and indemnified the Indian government in writing as part of the provision to settle restrospective tax disputes under the the Taxation Laws (Amendment) Bill 2021. 
In a release last week, Cairn Energy said it has decided to participate in the scheme under this recent legislation allowing the refund of taxes previously collected from Cairn in India. "Subject to certain conditions, the Taxation Amendment Act nullifies the tax assessment originally levied against Cairn in January 2016 and orders the refund of Rs7,900 crore which was collected from Cairn in respect of that assessment," it says.
The rules for implementing the 'Taxation Laws (Amendment) Bill, 2021' were notified only last month. The amendment bill notified on 1 October 2021 scrapped the contentious retrospective tax demand provisions. 
The Bill had amended the Income-Tax Act, 1961 to provide that no tax demand shall be raised in future based on the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28 May 2012 - when the Parliament passed the finance bill in 2012.
"The 2021 Act also provides that the demand raised for offshore indirect transfer of Indian assets made before 28 May 2012 shall be nullified on fulfilment of specified conditions," the ministry of finance had said.
"Such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, and interest shall be filed and such other conditions are fulfilled as may be prescribed."
Besides, the amount paid or collected in these cases shall be refunded without any interest.
To receive a tax refund, companies must indemnify the Indian government against future claims and withdraw any pending legal proceedings.
Earlier in September this year, in its half-yearly result announcement, Cairn Energy had stated that the expected near-term resolution of the India tax dispute would result in a refund of Rs79 billion to Cairn from the Indian government. 
"In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions to be eligible for the refund," it had said.
An arbitration tribunal at The Hague had pronounced its award on 21 December 2020 in favour of Cairn Energy Plc and Cairn UK Holdings Ltd (CUHL), making the Indian government liable to pay an arbitration award of $1.2 billion to it.
In July 2021, Gen (retd) VK Singh, the minister of state for civil aviation, informed the Lok Sabha that UK's Cairn Energy and Devas Multimedia Ltd had filed lawsuits in the US to seize overseas assets of Air India to recover dues from the Indian government. However, since Air India is a corporate entity with its management and board, it is defending its interest in this case by appointing lawyers, the minister had said.
Further, in the Vodafone arbitration case, the Permanent Court of Arbitration at The Hague ruled in favour of the company last year.
The Court ruled that the conduct of India's tax department is in breach of 'fair and equitable' treatment, thereby rendering Vodafone not liable to pay a retrospective tax demand of more than Rs20,000 crore raised by Indian authorities.
In 2010-11, Cairn Energy had sold Cairn India to Vedanta. Post the merger of Cairn India and Vedanta in April 2017, the UK company's shareholding in Cairn India was replaced by a shareholding of about 5% in Vedanta issued together with preference shares.
Along with attaching its shares in Vedanta, the I-T department from India seized dividends of around Rs1,140 crore due to it from the shareholdings and set off an Rs1,590-crore tax refund against the demand.
In 2015, Cairn had initiated an international arbitration to challenge retrospective taxation.
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