India to appeal against Cairn Energy arbitration award

The Indian government has decided to appeal against the international arbitration award of worth $1.2 billion that was won by Cairn Energy Plc. in tax dispute.

Highlights

  • India’s decision to appeal against the award shows the government’s commitment to defend the sovereign rights in taxation.
  • The government 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. This scheme provides relief on interest and penalty if the principal tax demand has been paid.

What is the issue?

  • The Cairn Energy Plc. Had made transactions in 2006-07 that involved the entities in Jersey. It led to capital gains for Cairn UK Holdings. This gain is taxable in India.
  • So, the government alleges the company that the offshore transaction that was executed by Cairn was done with the aim of evading taxes.
  • India had a tax demand of some Rs 104 billion and an equal amount in penalty and interest accrued.
  • The Cairn states that the Indian government has seized residual shares in the company which is acquired by Vedanta Resources.
  • The company also claims that, India also seized the tax refund due with the firm.
  • Both of the seizures amount to approximately Rs10,570 crore.
  • But because of international arbitration the company secured an award of $1.2 billion besides the interest and cost. This amount will now be contested by the Indian government.

Vivad se Vishwas Scheme

This scheme gives a complete waiver on interest and penalty for the taxpayers in case they pay their pending taxes or disputed tax amount by March 31. This scheme was launched with the aim of benefiting those whose tax demands are undergoing dispute at multiple forums. It aims to resolve 483,000 direct tax-related disputes pending with appellate forums.

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