After Cairn Energy embarrassed the government by secured an order from a French court to seize about 20 properties in Paris belonging to India, the Narendra Modi government has finally decided to amend the retrospective amendment introduced in 2012. The retrospective amendment of the law to extort taxes was a monstrous demonstration of State power, initiated by Pranab Mukherjee in 2012 and continued by successive finance ministers under the Bharatiya Janata Party (BJP) regime.
On Thursday, the Indian government introduced the Taxation Laws (Amendment) Bill in the Lok Sabha aiming to bring closure to the retrospective income-tax (I-T) law introduced in 2012. The 2012 law was used to raise large tax demands on Vodafone and Cairn Energy for transactions that had taken place earlier.
The new amendment proposed by finance minister (FM) Nirmala Sitharaman says no tax demand to be raised based on the 2012 retrospective amendment on indirect transfers of Indian assets. The 2012 amendment will apply prospectively and not retrospectively, it says.
Further, for the tax purpose, the transaction should have taken place before 28 May 2012, the new amendment says.
On the dramatic announcement, Kumar Mangalam Birla, who was a non-executive director and non-executive chairman of Vodafone Idea Ltd resigned. Mr Birla's resignation comes days after it became public that he had written to the Cabinet secretary that he is willing to hand over his stake in the debt-ridden company to government entities in a bid to keep the company operational. (Read: Kumar Mangalam Birla steps down as Vodafone Idea's Non Executive Chairman
Last month, the minister of state for civil aviation Gen (retd) VK Singh informed the Lok Sabha that UK's Cairn Energy and Devas Multimedia Ltd have 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 own management and board, it is defending its interest in this case by appointing lawyers, the minister says.
Last year in September, Vodafone had won the case against India over a retrospective tax demand of more than Rs20,000 crore.
The Permanent Court of Arbitration at The Hague has ruled that the conduct of India's tax department is in breach of fair and equitable treatment.
Vodafone had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties' arbitrators in finalising a judge for the tax dispute.
Following this, a tribunal was constituted in June 2016 after Vodafone challenged India's use of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone's $11 billion acquisition of a 67% stake in Hutchison Whampoa in 2007. The retrospective tax law had been enacted after the Supreme Court judgement went in Vodafone's favour.
Vodafone had challenged the tax department's demand of Rs7,990 crore as capital gains taxes (Rs22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).
Similarly, last month, UK's Cairn Energy has securing an order from a French court to seize about 20 properties in Paris belonging to the Indian government for recovering a portion of $1.2 billion from India against the backdrop of the arbitration victory of the company.
In December 2020, an international arbitration tribunal ruled that India's tax claim of Rs10,247 crore in past taxes over the internal reorganisation of Cairn's India business was not a valid demand and had awarded damages of $1.2 billion along with interest and costs to the UK energy company.
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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