No Retrospective Tax as Govt Brings in New Amendment; Big Relief to Vodafone, Cairn Energy
Moneylife Digital Team 05 August 2021

After Cairn Energy embarrassed the government by secured an order from a French court to seize about 20 properties in Paris belonging to India, the Narendra Modi government has finally decided to amend the retrospective amendment introduced in 2012. The retrospective amendment of the law to extort taxes was a monstrous demonstration of State power, initiated by Pranab Mukherjee in 2012 and continued by successive finance ministers under the Bharatiya Janata Party (BJP) regime.

On Thursday, the Indian government introduced the Taxation Laws (Amendment) Bill in the Lok Sabha aiming to bring closure to the retrospective income-tax (I-T) law introduced in 2012. The 2012 law was used to raise large tax demands on Vodafone and Cairn Energy for transactions that had taken place earlier.

 
The new amendment proposed by finance minister (FM) Nirmala Sitharaman says no tax demand to be raised based on the 2012 retrospective amendment on indirect transfers of Indian assets. The 2012 amendment will apply prospectively and not retrospectively, it says. 
 
Further, for the tax purpose, the transaction should have taken place before 28 May 2012, the new amendment says.
 
 
On the dramatic announcement, Kumar Mangalam Birla, who was a non-executive director and non-executive chairman of Vodafone Idea Ltd resigned. Mr Birla's resignation comes days after it became public that he had written to the Cabinet secretary that he is willing to hand over his stake in the debt-ridden company to government entities in a bid to keep the company operational. (Read: Kumar Mangalam Birla steps down as Vodafone Idea's Non Executive Chairman)
 
Last month, the minister of state for civil aviation Gen (retd) VK Singh informed the Lok Sabha that UK's Cairn Energy and Devas Multimedia Ltd have filed lawsuits in the US to seize overseas assets of Air India to recover dues from the Indian government. However, since Air India is a corporate entity with its own management and board, it is defending its interest in this case by appointing lawyers, the minister says.
 
Last year in September, Vodafone had won the case against India over a retrospective tax demand of more than Rs20,000 crore.
 
The Permanent Court of Arbitration at The Hague has ruled that the conduct of India's tax department is in breach of fair and equitable treatment.
 
Vodafone had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties' arbitrators in finalising a judge for the tax dispute.
 
Following this, a tribunal was constituted in June 2016 after Vodafone challenged India's use of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone's $11 billion acquisition of a 67% stake in Hutchison Whampoa in 2007. The retrospective tax law had been enacted after the Supreme Court judgement went in Vodafone's favour.
 
Vodafone had challenged the tax department's demand of Rs7,990 crore as capital gains taxes (Rs22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).
 
Similarly, last month, UK's Cairn Energy has securing an order from a French court to seize about 20 properties in Paris belonging to the Indian government for recovering a portion of $1.2 billion from India against the backdrop of the arbitration victory of the company. 
 
In December 2020, an international arbitration tribunal ruled that India's tax claim of Rs10,247 crore in past taxes over the internal reorganisation of Cairn's India business was not a valid demand and had awarded damages of $1.2 billion along with interest and costs to the UK energy company.
 
In 2010-11, Cairn Energy had sold Cairn India to Vedanta. Post the merger of Cairn India and Vedanta in April 2017, the UK company's shareholding in Cairn India was replaced by a shareholding of about 5% in Vedanta issued together with preference shares.
 
Along with attaching its shares in Vedanta, the I-T department from India seized dividends of around Rs1,140 crore due to it from the shareholdings and set off an Rs1,590-crore tax refund against the demand.
 
In 2015, Cairn had initiated an international arbitration to challenge retrospective taxation.
Comments
david.rasquinha
3 months ago
Grudging even now. No interest will be paid - we accept that the move was wrong but will not pay a fair interest despite having sue of Cairn's money. I wonder if Cairn will play ball. Part of me hopes Cairn says go to hell and demands full sum plus interest. The bureaucracy and ministers need to learn that power must be exercised responsibly and not arbitrarily.
umeshs62
3 months ago
Retroactive laws are absolutely horrendous. I am surprised that a democracy like India adopted it. It beats me that no one in the government stood up against it. It must have caused massive damage to India as destination for FDI. India could have capitalized on the Problems that foreign companies are facing in China but due to egoistic approach by the government country missed the bus. Well, it’s never too late. Let FDI feel welcome. This will put us on the growth path and lead to employment generation.
rajoluramam
3 months ago
Better late than never. This is already overdue. A developing country should never do such retrospective taxation. The father of this bill was
Mr Pranab Mukherjee. At that time all opposition parties including BJP opposed the bill. However NDA government took 7 years to reverse the bill.


jayoo
3 months ago
Better late than never... At least the successive Govt should have applied their mind and resolved it earlier. But it was only after Cairn Energy embarrassed the government by securing an order from a French court to seize about 20 properties in Paris belonging to India, that our Govt amended the law and scarpped the provision of retrospective tax.
pgodbole
3 months ago
Finally, some sense of wisdom has dawned on the government. It is surprising that this common sense did not find favour with successive finance ministers.It will be interesting to see the reaction of opposition parties, especially Congress,which had brought the amemndment.
asok9848
3 months ago
Kisan grain booth near amul milk booth in every town pan India.The farmer should directly sell their grain through these booth to consumers using software developed by National informatics centre in local area with local language between farmer and consumer.This can be done at post office adding one counter with rates displayed.The counter will book order and supply through delivery boys.this will increase the sales and reduce price.people will buy FMCG from shops BUT grains from order at these booths at cheaper rate as consumers and suppliers will be from same district to start with.If successful then can extend to other districts for rice,flour,dal and edibile oils only.
krissukumaran
Replied to asok9848 comment 3 months ago
Excellent idea. Request you to send it to PMO so that further necessary infrastructure & other arrangements can be done.
parimalshah1
3 months ago
Better late than never. Wish this was done much earlier.
krissukumaran
3 months ago
This should have been long before. Why wasting lot off tax payers money in legal fees, embracement international level, the UPA policy of harassment of international business es so that the powers then could make money on sideline, or create deliberately Court cases, arbitration so that after the power is gone appear as Corporate legal counsel on behalf of those same business houses and make money. Like in the case of ENRON by PC.
mudit3
3 months ago
Government turned a defeat into a disaster. They lost and as a face saving measure have said it will be prospective. They are very greedy. Instead of saying crony capitalism, I will say greedy and gouging governments
kalemohan
3 months ago
This is sin of ex FM, eX president of india who has been given bharat ratna why?
msivanand
3 months ago
Justice at last. When in 2012, Pranab Mukherjee introduced this Retrospective Tax amendment, which was against all justice, and against a Supreme Court verdict, the BJP opposition called it "tax terrorism". But when they came to power in 2014, they did not do anything about it, only promising not to apply it—which was a fishy promise they did not keep. Now that the fight went international and Indian assets were at stake, the government had to relent. It was, in all, a shameless, bullying effort by our governments in power, and Pranab Mukherjee must turn in his grave for eternity. The BJP could have done this in 2014 itself and saved us this embarrassment.
Kamal Garg
Replied to msivanand comment 3 months ago
Yes, I perfectly agree. All successive governments and finance ministers did nothing to salvage the situation and rather aggravated the situation. It is a shame that some foreign company takes Government of India to court of retrospective tax against all sorts of judicial and political review. Finally, against international investor community pressure, you had to succumb and agree with the right ness of the tax matters.
kalemohan
Replied to msivanand comment 3 months ago
yes you are right.but BJP govt was interested in money to earn by the virtue of retrospective taxes.
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