The Government of India paid Cairn Energy Plc ₹7,900 crore to refund taxes it received to enforce a retrospective tax demand, bringing a seven-year-old dispute to a close, reported BS.
At the outset, the government had refused to honour the award but in August 2021 introduced a law to scrap all retrospective tax demands and refund money collected excluding interest or penalty, reported Business Standard.
The company, known as Capricorn Energy PLC, said it has received “net proceeds of USD 1.06 billion”, of which nearly 70 per cent will be returned to the shareholders.
The tax department invoked a legislation introduced in 2012, giving it powers to go back 50 years and slap capital gains levies wherever ownership changed hands abroad but assets were held in India, to demand ₹10,247 crore tax from Cairn, BS reported.
In 2006-07, Cairn reorganised its India business comprising operations of Rajasthan oilfields, before it listed on stock markets. While the company sold majority holding in the India unit to Vedanta in 2011, it was slapped with the tax demand notice in 2014 over alleged capital gains made on the reorganisation.
The British firm countered the demand, saying all taxes due were duly paid when the reorganisation — duly approved by all statutory authorities — took place.
Cairn took the government to international arbitration and got a favourable ruling on December 22, 2020 that asked Indian authorities to refund the tax collected along with interest and penalty.