India pays Cairn Rs 7,900 cr to settle retro tax dispute

New Delhi: The Indian government has paid Cairn Energy Plc Rs 7,900 crore to refund taxes it had collected to enforce a retrospective tax demand, ending a seven-year-old dispute that had tarred the country's image as an investment destination.

The company, which is now known as Capricorn Energy PLC, in a statement said it has received "net proceeds of $1.06 billion", of which nearly 70 per cent will be returned to the shareholders. The tax department had used a 2012 legislation, which gave it powers to go back 50 years and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India, to seek Rs 10,247 crore in taxes from Cairn. Cairn had in 2006-07 reorganised its India business, which comprised operations of prolific Rajasthan oilfields, prior to its listing on stock exchanges.

While the company sold majority holding in the India unit to Vedanta in 2011, it was in 2014 slapped with the tax demand notice over alleged capital gains made on the reorganisation. The British firm contested the demand, saying all taxes due were duly paid when the reorganisation, which was approved by all statutory authorities, took place.

But the tax department in 2014 attached and subsequently sold the residual shares that Cairn held in the Indian unit. It also withheld tax refunds and confiscated dividends due to it to settle part of the tax demand. All this totalled Rs 7,900 crore.

Cairn dragged the government to international arbitration over the levy and enforcement proceedings and on December 22, 2020, got a favourable ruling that asked India to refund the tax collected together with interest and penalty.