$1.4 billion Cairn Arbitration award: Union Finance Minister says it’s her duty to appeal

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On Friday, Union Finance Minister Nirmala Sitharaman indicated the Govt will appeal against an arbitration panel asking India to return $1.4 billion to UK’s Cairn Energy Plc.

When asked about a retrospective decision on Cairn Energy, Sitharaman said it is her “duty” to appeal in cases where the nation’s sovereign authority to tax is questioned.

Last year, the Govt lost 2 high-profile arbitrations over the levy of taxes on British firms, using legislation that gave it the power to levy taxes with retrospective effect.

While the Govt has already challenged in a Singapore court an international arbitration tribunal verdict that overturned its demand for Rs 22,100 crore in back taxes from Vodafone Group Plc, it hasn’t yet done so against a December 21 award asking India to return the value of shares seized & sold, divided, confiscated & tax refund stopped to adjust a Rs 10,247 crore tax demand on Cairn.

“We have made our position clear on retrospective taxation. We have repeated it in 2014, 2015, 2016, 2017, 2019, 2020, till now. I don’t see any lack of clarity,” she said, referring to the Modi government’s stand of not raising any new tax demand using the 2012 legislation.

“Where I find arbitration award questioning India’s sovereign authority to tax… if there is a question about the sovereign right to tax, I will appeal, it’s my duty to appeal,” she said. “An arbitration award, which questions the authority of government to tax, I will appeal on that.”

She didn’t make any direct reference to appealing against the Cairn award.

Cairn Energy-Indian government dispute

The Cairn dispute started 15 years ago, in 2006-2007. Cairn UK had transferred shares of Cairn India Holdings to Cairn India. Then, tax authorities decided that since Cairn UK had made capital gains, it ought to pay capital gains tax which the company refused to pay.

This was followed by several rounds of litigation at the Income-Tax Appellate Tribunal (ITAT) & 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.

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