NEW DELHI: Barely three months after Vodafone Plc won an international arbitration against India’s Rs 22,100 has crore retrospective tax demand, the country on Wednesday suffered another blow arising from the controversial 2012 amendment to its tax laws. This time, a three-member arbitration tribunal under the Permanent Court of Arbitration, The Hague, has directed India to pay UK-based energy giant Cairn $1.2 billion in damages, along with interest and legal costs.
The final amount India would have to pay if it doesn’t challenge the award is likely to be $1.4 billion (over Rs 10,300 crore), say sources. “The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty,” the company said in a statement on Wednesday.
The Government of India, for its part, said that it “will be studying the award and all its aspects carefully in consultation with its counsels”.
After the UPA-led government lost its case against Vodafone Plc at the Supreme Court in 2012, then finance minister Pranad Mukherjee passed an amendment in law making the tax liability retrospective.
In March 2015, Cairn was slapped with Rs 10,247 crore retrospective tax demand over gains from an internal reorganisation implemented in 2006-07.
But unlike the Vodafone Plc case, where no overt action was taken by both the UPA and the subsequent NDA governments, Cairn’s holdings were seized and then subsequently sold to realise the tax liability.
By 2011, Cairn Energy Plc had already sold its India subsidiary, Cairn India, to Vedanta Ltd, retaining only a 5% stake. But after the tax demand and subsequent initiation of arbitration by the company in 2015, GoI seized the stake and sold it to realise the claim. It also seized dividends totalling Rs 1,140 crore due to Cairn and set off a `1,590-crore tax refund against the demand.
90 days to file appeal
Govt has 90 days to mount an appeal against the order, say sources. In the case of Vodafone, this runs out on December 24 and no appeal has been filed yet. For Cairn, if it doesn’t challenge the award, the cash outflow is set to be over Rs 10,300 crore