Had the BJP not come to energy in 2014, and then once again in 2019, probabilities are it would have been celebrating the international arbitration awards in the Vodafone and the Cairn Energy situations – Vodafone’s award was in September, Cairn’s today – and mentioned the international legal neighborhood had ruled against the UPA’s retrospective tax certainly, a major component of the BJP’s campaign in 2014 was to cease tax-terror that incorporated situations like Vodafone and Cairn. The BJP, having said that, is in government today, and all indications are it will challenge the Cairn ruling because, in contrast to in the Vodafone case, the government has to shell out more than $1.4 bn such as interest as properly as charges of the litigation.
Ideally, the government ought to accept each awards because not only does attractive them show that India has no respect for international arbitration awards, its then finance minister Arun Jaitley had repeatedly mentioned he would accept what the courts – this consists of arbitration panels – ruled in the case of the retrospective tax situations exactly where a legal challenge had currently been mounted. And though it seems that the government will have to spend $1.4 bn+ though it has to spend practically absolutely nothing in the Vodafone case, retain in thoughts the $1.4 bn is revenue the taxman has, in the previous, taken from Cairn so, the taxman is in fact just getting asked to return what has been confiscated, absolutely nothing else. This consists of $1bn worth of Cairn’s shares as properly as the dividend Vedanta had to spend Cairn. The taxman who convinced Jaitley that confiscating – and promoting – Cairn’s assets even prior to winning the case clearly has a lot to answer for.
On the face of items, each the Cairn and Vodafone situations appear equivalent as each are about the unwarranted use of the retrospective tax and, in each situations, even the arbitrator appointed by the Indian government ruled against its taxman. Yet, in a basic sense, they are pretty unique because, in contrast to the Vodafone case exactly where $11.1 bn was paid out to Hutchinson Telecom for its India business enterprise – the taxman mentioned Vodafone ought to have deducted TDS on the quantity – there have been no money flows in the Cairn deal.
The Cairn case pertains to its IPO. Apart from the truth that IPO proceeds are by no means taxed, Cairn could have carried out the IPO overseas at that point, the numerous Cairn subsidiaries that held the India assets, like the Rajasthan oilfields, have been situated abroad. Cairn, having said that, chose to do the IPO in India and when it submitted facts of the corporate restructuring amongst numerous Cairn providers and its Indian subsidiary to the Foreign Investment Promotion Board – a finance ministry Secretary is component of FIPB – the problem of taxes getting due was by no means raised. When the share transfers – amongst the Cairn providers, which have been connected parties – have been examined by a transfer pricing officer (TPO), the problem of taxes was by no means raised either.
In 2009 and 2011, Cairn sold its stake to Petronas and Vedanta and paid about Rs 3,700 crore of capital gains taxes on these transactions the very same 2006 transactions have been examined after once again and, even then, no demand was created for taxes. It was only soon after the retrospective tax legislation was introduced in 2012 that the taxman decided to go soon after Cairn beneath that.
What tends to make Cairn unique from Vodafone is also the timing of the tax demand. Unlike Vodafone exactly where the tax demand was reinstated soon after the retrospective tax legislation was passed in 2012, the Cairn tax demand was issued practically a year soon after the BJP came to energy as it occurs, the tax notice was sent on March 10, 2015, the birthday of Cairn CEO Simon Thomson! So, when the BJP government was saying it would be attempting to repair the UPA’s retrospective tax problem, and the remedy identified was to accept court/tribunal judgments/rulings on the situations in court, Cairn had not been sent a tax notice. If the BJP had wanted, the case could conveniently have been sent to a panel for examination. As it occurs, some months later, the government set up the Justice AP Shah committee to appear at the problem of levying MAT on FIIs and the mandate of the panel was extended to hear other tax situations at that time, the government mentioned ‘active cases’ would not be thought of, but the truth is that Cairn would not have been an ‘active’ case had the panel been set up a handful of months earlier.
Though no choice has been taken on whether or not to challenge the Cairn award – the Vodafone one particular will also have to be challenged if Cairn is – if previous is precedent, it most absolutely will be challenged, even though how the courts react is not clear. Just a handful of months ago, the Supreme Court turned down a government appeal to cease a $476-mn award that Vedanta and Videocon had won way back in January 2011. The Reliance Industries award – it won this in 2016 – in the Panna Mukta Tapti case is nonetheless pending in court, as is the 2018 Reliance ONGC one particular exactly where the government was unable to convince the arbitration panel that Reliance had to spend $1.6-bn in damages for ‘stealing’ all-natural gas from ONGC.
While the government appealed the $672-mn arbitration award that Devas Multimedia won against Isro-arm Antrix Corporation in 2016, the truth that the SC asked Devas whether or not it would be prepared to waive off the interest element of the revenue owed to it suggests the challenge might not hold. Indeed, in the Tata Docomo award that the government challenged – even even though it was not a celebration to the case – on grounds the agreement signed by Tata and Docomo violated Fema guidelines, the Delhi higher court mentioned the arbitration award would have to be honoured even if this meant the Tatas paid a fine for violating Fema guidelines. In the case of the government’s canalising agency Nafed versus Swiss firm Alimenta SA, even though, SC didn’t permit the 1989 international arbitration award to be implemented earlier this year as it felt it violated India’s public policy.
The taxman, who is the villain of the piece in each Cairn and Vodafone, even though, most likely got it correct in the case of Swiss firm Xstrata’s arbitration award against Delhi-primarily based Dalmia Bharat. The Delhi High Court ruled against the tax division – final year – wanting to tax the award as a ‘windfall gain’ the Section of the DTAA amongst India and Switzerland cited by the taxman talks of revenue from lotteries, races, card games, gambling, betting … Unknowingly, having said that, was the taxman admitting than effectively enforcing arbitration awards in India is seriously a matter of luck, a lottery?