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Cairn Energy wins arbitration award against India in tax dispute

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Cairn Energy wins arbitration award against India in tax dispute:


What was the case?

Cairn had challenged the Indian government seeking taxes over an internal business reorganisation using the 2012 retrospective tax law, under the UK-India Bilateral Investment Treaty.

  • In 2011, Cairn Energy sold its majority stake in Cairn India to Vedanta Ltd, reducing its stake in the Indian company to about 10 per cent.
  • In 2014, the Indian tax department had demanded Rs 10,247 crore ($1.4 billion) in taxes.

What is the latest ruling?

The three-member tribunal also comprised a judge appointed by the Indian government.

It ruled:

  1. India’s claim of Rs 10,247 crore in past taxes over a 2006-07 internal reorganisation of Cairn’s India business was not a valid demand.
  2. India should pay the funds withheld along with the interest to the Scottish oil explorer for seizing dividend, tax refund, and sale of shares to partly recover the dues.
  3. India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty.

How the issue reached arbitration tribunal?

  • Cairn’s claim was brought under the terms of the UK-India Bilateral Investment Treaty, the legal seat of the tribunal was the Netherlands, and the proceedings were under the registry of the Permanent Court of Arbitration.

Implications:

This is a second blow to the government in three months on the controversial retrospective tax levy.

  • The development comes as a major setback for the Indian government after Vodafone Group Plc had won an international arbitration case against the Indian government in September.

What next for the Indian Government?

The order does not contain a provision for challenge or appeal against the award, but the Indian government may challenge it, and the Prime Minister’s Office (PMO) will take a final call on challenging the award.

taxing

InstaLinks:

Prelims Link:

  1. What is Arbitration?
  2. Recent Amendments.
  3. About the International Court of Arbitration.
  4. About the Arbitration Council of India.
  5. Appointment of arbitrators under the 1996 Act.
  6. PCA- composition, functions and members.

Mains Link:

Discuss the significance of the Arbitration and Conciliation (Amendment) Act.

Sources: the Hindu.