After Cairn, other companies queue up to settle disputes

After UK-based Cairn Energy PLC, about a dozen other firms affected by India’s retrospective taxation rule will file application with the income tax (I-T) authorities in the next few days to initiate settlement of their tax disputes ahead of the November 16 deadline, sources aware of the matter told FE.

Vedanta, a related party in the Cairn tax dispute, would also file application to withdraw from litigation soon, they added. Vodafone, another major firm embroiled in the tax dispute, would file later as its case falls under a separate section of the tax dispute resolution notification, which came nearly two weeks after the first one which covered all others.

On November 3, Cairn Energy said it entered into certain undertakings with the Government of India, which would allow for the refund of taxes under a long-running dispute. The latest announcement came after the company 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 its billion-dollar tax dispute. With likely tax refunds of about Rs 7,900 crore, the company has announced to pay special dividend to shareholders in Q12023.

“General indication is that all of them (firms other than Cairn, including Vedanta) will file in the next few days….except 2-3 companies which could not be located,” a senior official told FE. On October 2, the government notified a set of rules to implement the recent amendment to the Income Tax Act that scrapped retrospective application of a 2012 change in the law concerning taxation of cross-border transactions.

According to the rules, the initial submission of an undertaking to withdraw all pending legal proceedings has to be done in 45 days from the day of the notification. The tax refunds process could take 2-3 months time thereafter. In order for the government to revoke the tax demand and refund the amounts collected sans interest, the party concerned will have to indemnify the Indian government against any future claims, withdraw all pending litigation in domestic courts and arbitration under bilateral investment treaties filed abroad and ensure that cases filed by any “separate interested parties” including beneficial owners are withdrawn. This would mean that Vedanta has to undertake to withdraw the arbitration filed under India-Singapore tax treaty for Cairn Energy to avail of the facility offered by New Delhi.

The amendment passed by Parliament in the monsoon session provided that the demand raised for offshore indirect transfer of Indian assets made before 28th May, 2012 (including the validation of demand provided under Section 119 of the Finance Act 2012) shall be nullified on fulfillment of specified conditions. Of course, the amounts collected under retrospective tax claims — about Rs 8,100 crore — will now be refunded sans interest. Of these, Cairn accounted for about Rs 7,900 crore, Rs 45 crore for Vodafone, Rs 119 crore for New Singular Wireless and Rs 48 crore for WNS Capital Investment.

In the Cairn case, Vedanta has sought compensation close to Rs 5,000 crore under the India-Singapore investment treaty for significant decline in share value owing to the Rs 10,250-crore tax notice to its the then subsidiary Cairn India. Cairn India later merged with Vedanta.

Though there are as many as 17 retrospective tax cases, the most prominent ones are those involving Vodafone and Cairn. India in January 2013 slapped Vodafone with a tax demand of Rs 14,200 crore, including principal tax of Rs 7,990 crore and interest. This was in February 2016 updated to Rs 22,100 crore plus interest.

The country also slapped an assessment of Rs 10,247 crore on Cairn Energy in January 2014, which after including penalities came to Rs 20,495 crore. Both Vodafone and Cairn secured international arbitration orders in their favour in September and December 2020 respectively. FinancialExpress