London-listed Vedanta group of NRI tycoon Anil Agarwal has slapped a `notice of claims' against the government of India, challenging the Rs 204.97billion tax claim against its Indian subsidiary, Cairn India, using retrospective law.
This is the second claim being filed against the government over the tax notice. Earlier, Cairn Energy Plc, which had in 2011 sold a majority stake in Cairn India to Vedanta group for $8.67 billion, sought compensation for the loss in value it suffered due to an “unfair and arbitrary” demand for Rs 102.47 billion.
Vedanta filed the notice against the income tax department's move to impose Rs 204.97 billion in taxes and penalties on Cairn India for allegedly failing to deduct tax on capital gains made by its former parent, Cairn Energy Plc, while doing a business reorganization seven years ago.
Cairn Energy had in 2006-07 transferred its India assets, including the Barmer oilfields in Rajasthan, to a new company - Cairn India - and listed it on the stock exchanges. Finance ministry sources said this was a legacy issue it had inherited from the UPA regime, which imposed the retrospective law in 2012 to tax share transfers, and no new notices were being issued under this law.
Vedanta said it would take “all necessary steps” to protect its interest against the tax notice on Cairn India. “Vedanta's board of directors has instructed counsel to file a notice of claim against the Government of India under the UK-India bilateral investment treaty (BIT) in order to protect its legal position and shareholder interests,” Vedanta said in a filing to the London Stock Exchange. Cairn India too has informed the bourses of the filing by Vedanta.
“If enforced, such tax demand would have serious consequences for Cairn India and therefore Vedanta's investment in Cairn India,” the company said. Vedanta said the claim notice was the first step required prior to commencement of international arbitration pursuant to the BIT. “Vedanta and Cairn India will continue to take all necessary steps to protect their interest and the interest of their shareholders.“The government has also made a parallel tax demand on Cairn UK Holdings, for which the Edinburgh-based company has sought arbitration and is seeking compensation under the UK-India investment treaty. The company has been advised by leading international counsel that the retrospective tax legislation passed is a violation of protections accorded to investors under the BIT and constitutes a serious impairment of the treaty rights of Vedanta, it said.
Cairn Energy of the UK also recently sought compensation from the Government of India for the loss in value it suffered due to an “unfair and arbitrary” Rs 102.47 billion tax demand raised using a retrospective tax law.
