Informist, Monday, Jan 3, 2022

By Adrija Chatterjee

NEW DELHI – Tax refund to Cairn Energy Plc from the Indian government is likely to be delayed because of the spike in cases of the new variant of COVID-19 across the globe, a senior finance ministry official said.

"The refund payment to Cairn will take more time than anticipated before because both the company and Indian government officials want to hold meetings in-person before the transaction is concluded," the official told Informist.

With the spike in cases of COVID-19 across the globe, the process is now facing delays, the official added.

India reported 33,750 new cases of COVID-19 in the past 24 hours, highest since Sep 18. The total number of people infected with the Omicron variant rose to 1,700 from 1,525 cases reported on Sunday. 

In November, Cairn Energy Plc had given an undertaking to the Indian government that it will discontinue any legal case against the latter, allowing a refund of taxes previously collected from the company in India.

"Cairn is pleased to announce that it has entered into undertakings with the Government of India in order to participate in the scheme introduced by recent Indian legislation, the Taxation Laws (Amendment) Bill 2021 (the "Taxation Amendment Act"), allowing the refund of taxes previously collected from Cairn in India," according to a statement on the company's website.

The company said it was working with the government to expedite the process of refunding 79 bln rupees that India collected from the company under retrospective amendments made to the latter's direct taxation law in 2012.

In a surprise move earlier this year, India brought in changes to the Income Tax Act, 1961, to withdraw those retrospective amendments that allowed it to tax indirect transfer of assets on or before May 28, 2012.    

Taking advantage of the 2012 amendment, India had raised tax claims against 26 companies including Cairn and Vodafone.  

In case of Cairn Energy, the government had argued that the company did not pay tax in India on the capital gains it made by selling its India business to Vedanta Plc in 2011. As a recourse, the government in 2017 froze Cairn Energy's 5% stake in Vedanta Ltd along with some preference shares worth more than $1 bln.

Later, the tax department sold these shares attached to Cairn's stake as part of its efforts to recover its dues. But this was challenged by Cairn in The Permanent Court of arbitration, where the company claimed that India's actions violated the India-UK bilateral investment treaty. In December 2020, Cairn won the arbitration with an award of $1.7 bln against India in the court.

As a result, the government then decided to withdraw retrospective amendments and settle these cases.  End

Edited by Arshad Hussain

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