Cairn claim: India says never agreed to arbitrate tax dispute

New Delhi, May 23: India has challenged an international arbitration tribunal asking it to return $1.2 billion to UK's Cairn Energy Plc on grounds that it had never agreed to arbitrate over a "national tax dispute", the finance ministry said on Sunday.

In a statement, the ministry also refuted reports that the Government of India has purportedly asked state-owned banks to withdraw funds from foreign currency accounts abroad in anticipation of the potential seizure of such accounts on behalf of Cairn Energy.

While the government appointed a judge on the three-member arbitration panel and fully participated in the proceedings against India seeking Rs 10,247 crore in back taxes from Cairn, the ministry said the tribunal "improperly exercised jurisdiction over a national tax dispute that the Republic of India never offered and/or agreed to arbitrate."

India had seized and sold shares of Cairn in its erstwhile India unit, confiscated dividend due and withheld tax refunds to recover the tax demand it had levied two years after passing a law in 2012 that gave it powers to levy tax retrospectively.

Cairn invoked arbitration under the India-UK bilateral investment treaty.

In December last year, Cairn won an award that held the levy of taxes using the 2012 law unfair on the company and the tribunal asked the Indian government to return $1.2 billion plus cost and interest.

In a statement, the finance ministry called the 2006 reorganisation of Cairn's India business for listing on the local bourses as "abusive tax avoidance scheme that were a gross violation of Indian tax laws, thereby depriving Cairn's alleged investments of any protection under the India-UK bilateral investment treaty."

"The award improperly ratifies Cairn's scheme to achieve double non-taxation, which was designed to avoid paying taxes anywhere in the world, a significant public policy concern for governments worldwide," it said, adding the government on March 22 challenged the arbitration award in a court in The Hague— the seat of the arbitration.

It is not clear if a court in The Hague can go into merits of levy of taxation by the Indian government over a corporate amalgamation scheme.

Precedence dictates that challenges to international arbitration award are restricted to tribunal not following due process.

The tribunal that went into Cairn's challenge consisted of three judges— one judge each being named by the company and the Indian government and a third neutral presiding officer.

The three-member panel unanimously overturned the tax and asked India to return the value of shares sold, dividend seized and tax refund withheld.—