NEW DELHI: The government has filed an appeal against Cairn arbitration award, news agency PTI reported quoting sources.
The appeal — believed to be filed on Monday — has been filed against a three-member tribunal at the Permanent Court of Arbitration at The Hague invalidating India’s Rs 10,247 crore tax claim on Cairn Energy and ordering the government to return the value of shares it had sold, dividends seized and tax refunds withheld.
In December last year, an international tribunal had unanimously ruled that India violated its obligations under the UK-India Bilateral Investment Treaty in 2014, when the income tax department slapped a Rs 10,247 crore tax assessment using legislation that gave it powers to levy taxes retrospectively.
Soon after seeking Rs 10,247 crore in taxes over alleged capital gains made by the company over a 2006-07 reorganisation of India business before its listing, the tax department seized Cairn’s residual 10 per cent stake in Cairn India.
The appeal comes weeks before UK Prime Minister Boris Johnson’s visit to India on April 26 — who is widely expected to broach India honouring international arbitration awards.
Earlier this month, finance minister Nirmala Sitharaman had said that it is her “duty” to appeal in cases where the nation’s sovereign authority to tax is questionaed.
Cairn has moved courts in nine countries to enforce the award against India. The award has already been recognised by courts in the US, the UK, Netherlands, Canada and France and the same is in the process in Singapore, Japan, the United Arab Emirates and the Cayman Islands.
The registration of the award is the first step towards its enforcement in the event of the government not paying the firm. Once the court recognises an arbitration award, the company can then petition it for seizing any Indian government assets such as bank accounts, payments to state-owned entities, airplanes and ships in those jurisdictions, to recover the monies due to it, sources said.
How the dispute started
The Cairn dispute started 15 years ago, in 2006-2007. Cairn UK had transferred shares of Cairn India Holdings to its Indian counterpart, Cairn India.
Then, tax authorities decided that since Cairn UK had made capital gains, it ought to pay capital gains tax, which the company later refused to pay.
This was followed by several rounds of litigation at the Income-Tax Appellate Tribunal (ITAT) and the Delhi high court.
Cairn lost the case at ITAT; but a case on the valuation of capital gains is still pending before the HC.
In 2011, Cairn Energy sold the majority of its India business, Cairn India, to mining giant Vedanta. Tax authorities then barred it from selling about 10 per cent, citing pending taxation issues.
The payment of dividend by Cairn India to UK’s Cairn Energy was also frozen.
India’s retrospective tax was introduced in 2012 and made any capital gains resulting from the transfer of shares from a foreign entity whose assets were located in India taxable from 1962.
The tax department had raised the issue with Cairn in 2014 and the company responded by taking the matter up with the international arbitration panel the following year.
(With inputs from agencies)