Recently government of India has decided to appeal against the international arbitration award of worth US$ 1.2 billion that was won by Cairn Energy (Europe’s leading independent oil and gas exploration ) in tax dispute.

Points To Note

  • India’s decision to appeal against the international arbitration award shows the government’s commitment to defend the sovereign rights in taxation.
  • GoI has also kept the possibility of a resolution open within the existing Indian laws.
  • This also indicates the India’s willingness to settle tax dispute under the Vivad Se Vishwas scheme. Under this scheme relief on interest and penalty if the principal tax demand has been paid.

Issue

  • The Cairn Energy Had made transactions in the year 2006-07 that involved the entities in Jersey. It led to capital gains for Cairn UK Holdings Limited. This gain is taxable in India.
  • So, the GoI alleges the Cairn energy that the offshore transaction that was executed by the company was done with the aim of evading taxes.
  • India had a tax demand of some Rupees 104 billion and an equal amount in penalty and interest accrued.
  • The company states that the government of India has seized residual shares in the company which is acquired by Vedanta Resources.
  • The Cairn energy also claims that, India also seized the tax refund due with the firm.
  • Both of the seizures amount to approximately Rupees 10,570 crore.
  • But because of international arbitration the company secured an award of US$ 1.2 billion besides the interest and cost. This amount will now be contested by the government of India.

About Vivad se Vishwas Scheme

It gives a complete waiver on interest and penalty for the taxpayers in case they pay their pending taxes or disputed tax amount by 31st March 2021. The scheme was launched with the aim of benefiting those whose tax demands are undergoing dispute at multiple forums. Vivad se Vishwas Scheme aims to resolve 483000 direct tax-related disputes pending with appellate forums.

India to appeal against Cairn Energy arbitration award