New Delhi: The final hearing in British oil firm Cairn Energy‘s challenge to India imposing a 10,247 crore retrospective tax demand will begin in The Hague today, people familiar with the matter said. A three-member international arbitration tribunal will hear the case, which is likely to last 7-10 days.

The tax department is reportedly looking to sell Cairn’s remaining shares in Vedanta Ltd to recover tax dues. Beginning May 14, the income tax department sold about 6.45 crore shares or around 40% of Cairn’s shareholding in Vedanta. As many as 20 million (2 crore) shares were sold between May 14 and May 17 alone.

According to sources, the government had, in April, submitted its final rejoinder to Cairn’s claim for full restitution for losses resulting from the expropriation of its investments in India in 2014 and continued attempts to enforce retrospective tax measures. Following the government’s move, Cairn submitted its final pleading in May, and now the tribunal would begin final hearing before giving the final verdict, sources said. Arbitration award was likely to come within four months, they added.

The tax department had in January 2014 used a two-year-old retrospective tax law to raise a 10,247-crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of its India business. This was followed by attaching the company’s residual 9.8% shares in its erstwhile subsidiary, Cairn India.

Cairn India was subsequently merged with its new parent Vedanta, in which Cairn Energy held around 4.95% stake. These shares continued to be attached for four years, but the tax department earlier this year got them transferred to itself.

In its March-quarter filing to stock exchanges, Vedanta showed 18.41 crore (4.95%) shares being held by Tax Recovery Officer (International taxation)-I. This dropped to 11.96 crore shares (3.22%) during the June quarter.

On July 9, Cairn said in a statement that the tax department sold around 40% of its shares in Vedanta for $216 million and was likely to sell remaining stake as well. Reports also said that the I-T department would sell the remaining shares without waiting for the arbitration award.

E-mails sent to the tax department for comments remained unanswered.

Cairn last month said the tax department continued to enforce its retrospective tax claim against the company, though the arbitration initiated under the UK-India Bilateral Investment Treaty was ongoing. “To date, the tax department has seized dividends due to Cairn from its shareholding in Vedanta totalling $155 million and has offset a tax rebate of $234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter." Together, the department recovered $605 million (around 4,000 crore according to foreign exchange rates prevalent at the times of the action). The Central Board of Direct Taxes (CBDT) had, in April, said in response to a PTI query that “there is no legal advice against the sale of the attached shares".

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