India set to step up efforts to recover tax dues from Cairn2 min read . Updated: 19 Oct 2018, 05:55 AM IST
India will seek Britain's assistance under a bilateral tax treaty to recover Cairn Energy's retrospective tax dues
New Delhi: India is planning to seek the British government’s assistance under a bilateral tax treaty to recover disputed tax dues from energy firm Cairn Energy Plc, a government official said. India amended its Income Tax Act, 1961, in 2012 which made the British company’s 2006 asset restructuring in India retrospectively taxable.
The original tax demand was for ₹ 10,200 crore, plus interest and penalty of equal measure. Cairn has challenged the move before an arbitration panel.
“Once we exhaust local remedies—that is, selling Cairn’s entire residual shares in Vedanta—we plan to seek the UK’s administrative assistance under the bilateral tax treaty provisions to recover the dues," said the official, requesting anonymity.
In July, Cairn Energy said that Indian authorities had sold part of its 5% stake in Vedanta Ltd, which was attached by the tax department earlier for $216 million, and that it may make further sales from the remaining 3% shareholding that remained.
The official quoted above did not disclose how much of Cairn’s shares in Vedanta remained attached at present. Emails sent to Cairn Energy did not elicit any response till press time.
India is exploring ways of optimising corporate tax receipts to balance its budget at a time it had to cut excise duty on auto fuel and face below-targeted goods and services tax (GST) collections. In the first half of the current fiscal, the income tax department gave refunds amounting to over ₹ 1 trillion, which is over 30% more than the figure during the same period a year ago, according to an official statement earlier this month.
The dispute could get prolonged even if Cairn Energy wins a favourable award from the arbitration panel.
The company may have to approach an Indian court to get it enforced, as India claims taxation is a sovereign right that is not subject to arbitration. The provisions of Arbitration and Conciliation Act, 1996, shall apply for enforcement of the award, said the official.
That law also specifies the grounds for a local court to refuse enforcement of the award.
That goes against Cairn Energy’s claim that the arbitration panel’s ruling is binding on India.
The company is seeking restitution for losses totalling $1.3 billion, resulting from what it calls India’s expropriation of its investments in India.
Cairn group had received a 5% stake and preference shares in Vedanta Ltd in exchange for its residual stake in its former subsidiary Cairn India, which has been merged with Vedanta. Cairn Energy had sold its Indian arm to Vedanta’s parent, Vedanta Resources Plc, in 2011.
The tax department is seeking to recover capital gains tax on a 2006 internal reorganization of Cairn India Ltd prior to its listing in 2007 and subsequent sale to Vedanta Resources.