Govt to appeal against Cairn award, defend taxation right

NEW DELHI: The government is likely to file an appeal against the USD 1.4 billion international arbitration award won by Cairn Energy in a tax dispute, even as the issue did not figure during two-days of talks the Finance Secretary held with the company officials to look for a resolution, sources with knowledge of the matter said.

Soon after the second meeting in as many days between Cairn CEO Simon Thomson and Finance Secretary Ajay Bhushan Pandey ended, a person informed of the development said the government intends to defend its sovereign right in taxation and will file an appeal against an international tribunal ordering India to return USD 1.4 billion to the British firm.

However, another person briefed on the discussions between Cairn and Finance Ministry said the option of India appealing against the verdict did not figure in talks either on Thursday or Friday.

Cairn on its part remained tightlipped on the parleys it has initiated with an aim to avert the company having to take legal recourse to recover the amount including through seizure of Indian assets overseas.

"Constructive dialogue is continuing," Thomson said after the meeting on Friday. He did not elaborate.

Cairn in a letter to the Indian government last month indicated it could seize overseas assets such as airplanes and ships if New Delhi fails to comply with the arbitration award and return the value of the shares sold, dividend seized and tax refund withheld by the income tax department to recover part of the tax demand it had raised using retrospective legislation.

The firm has already started identifying assets it could seize in the event of Indian government does not comply with the tribunal order.

The first person said the government, however, has kept open the possibility of a resolution within existing Indian laws.

The options under the existing provisions, the person said, include Cairn opting for the direct tax dispute settlement scheme Vivad se Vishwas, which gives relief on interest and penalty if the principal tax demand is paid.

The tax department had in March 2015 slapped a tax demand of Rs 10,247 crore on Cairn for the alleged capital gains it made on reorganising its India business prior to an IPO in 2006-07.

It levied short-term capital gains tax in raising the demand even though Cairn had over several years built the India business that included developing the Ravva oil and gas field in the KG Basin and discovering the nation's biggest onland oilfield in Rajasthan.

Cairn at that time stated that its internal reorganisation was in compliance with the law and had been approved by various regulatory bodies including SEBI. It denied evading any taxes prevalent at that time and challenged the tax demand through international arbitration.