After three rounds of discussions on the $1.2 billion retrospective tax litigation final week, the federal government and UK-based Cairn Energy PLC have expressed hope to settle the matter amicably outdoors the courtroom by legally obtainable mechanisms such because the tax amnesty scheme “Vivad se Vishwas” [from dispute to trust], two folks with direct information of the matter mentioned on Sunday.
In an announcement on Sunday, Cairn Energy mentioned the 2 events have mentioned “a number of proposals with the aim of finding a swift resolution that could be mutually acceptable to the Government of India and the interests of Cairn’s shareholders”. The assertion got here after finance secretary Ajay Bhushan Pandey and Cairn Energy chief government Simon Thomson mentioned the matter on Thursday, Friday and Saturday. Pandey is main an inter-ministerial workforce holding discussions with the visiting Cairn delegates led by Thomson.
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One of the folks talked about above mentioned discussions have progressed in the precise route up to now. “The government is hopeful about a mutually acceptable solution soon within the legal framework, and Vivad se Vishwas is the legal framework,” he mentioned on situation of anonymity. HT first wrote about it on February 16.
“Another meeting cannot be ruled out as both parties [the government and Cairn] are willing to resolve the dispute as soon as possible,” he added.
Cairn mentioned its discussions with the officers of India’s finance ministry had been “cordial and constructive” “notwithstanding and without prejudice” to the company’s rights underneath the worldwide arbitration award.
“Assuming such a resolution can be achieved, we look forward to being able to move on to further opportunities to invest in India which continues to import the majority of energy sources it consumes,” it mentioned in the assertion.
“We remain hopeful that an acceptable solution can be found, in order to avoid further prolonging and exacerbating this negative issue for all parties. However, we have also been clear that we must continue to take all necessary steps to protect the interests of our shareholders,” Cairn mentioned.
A finance ministry spokesperson didn’t reply to HT’s queries.
The first individual quoted above mentioned this litigation is a legacy situation inherited by the National Democratic Alliance (NDA) authorities. “The government [incumbent] is in principle against any retrospective tax. But, it is also committed to act as per the law of the land. The I-T [Income Tax] Act was amended retrospectively, and companies [Cairn and Vodafone] challenged it on the basis of bilateral investment treaties, which would have far reaching consequences. No treaty could challenge the sovereign right to tax. Hence, the government has no option to challenge such arbitration awards, unless withdrawn,” he mentioned. The authorities has already appealed towards the arbitration award in the case of Vodafone, and has time until subsequent month on the Cairn matter, he added.
India is concerned in two authorized battles over retrospective taxation – one with Vodafone Group PLC and one other with Cairn. On September 25, 2020, a global arbitration tribunal in The Hague dominated that the Indian authorities’s choice to retrospectively amend the Income Tax Act, 1961 in the 2012-13 price range was not constant with an funding treaty signed between India and the Netherlands.
Another arbitration tribunal, constituted underneath the settlement between the UK and India for the promotion and safety of investments, on December 21, 2020 dominated in favour of Cairn on related grounds. Earlier this month, Cairn moved a US district courtroom to implement the arbitration award.
The retrospective modification of the Income Tax Act in 2012 was utilized to Cairn, when it was exiting from its subsidiary Cairn India Ltd in January 2014. The Act was amended retrospectively throughout the tenure of then finance minister Pranab Mukherjee after the Supreme Court dominated in favour of Vodafone on a ₹11,000 crore tax dispute with the federal government.
Abhishek A Rastogi, associate at regulation agency Khaitan & Company, mentioned: “The GoI’s proposal to resolve the tax dispute under the ongoing ‘Vivad se Vishwas’ scheme is a pragmatic solution to end the litigation quickly and settle the matter amicably. Any other approach would prolong the litigation.”