Exclusive: Expect fast resolution of retro tax cases, says revenue secretary

A day after the Lok Sabha passed the Taxation Laws (Amendment) Bill to end the legacy retrospective tax issue, Revenue Secretary Tarun Bajaj said that the government expects fast resolution of the cases once the bill is passed into law by Parliament.

In an exclusive interaction with Business Today, Bajaj stated that the refunds will be processed soon after the firms opt to comply and agree to the undertakings under the rules of the upcoming law.  

"We hope that the resolution will be done very fast. Also, once a firm is ready to comply with the provisions of the undertakings and the rules, we would like to refund the principal amount soon after," Bajaj said.

Also Read: Lok Sabha passes Taxation Laws (Amendment) Bill 2021 to end retro tax

The Union Finance Ministry will start working on the rules under the proposed law beginning Monday expecting the Taxation Laws (Amendment) Bill to be passed by the Rajya Sabha next week. In all likelihood, the rules pertaining to the undertakings to be submitted by a firm willing to settle tax disputes under the proposed law may be finalised by the end of next week.  

Bajaj said the total outgo on account of the nullification of the retrospective tax demands pertaining to deals prior to May 2012, as per provisions of the Finance Act 2012, is to the tune of Rs 8,100 crore.  

"Major affected party is Cairn Energy from which Rs 7,900 crore has been raised in taxes while Rs 45 crore has been raised from Vodafone. There are two more companies, from which a small amount has been raised," Bajaj added.

The retro tax saga dates back to 2007 when the British telecom company Vodafone purchased Hutchison Essar's entire stake in Cayman-based CGP Investments, which owned 67 per cent in Indian telecom operator Hutch Essar, in a deal valued at about $11 billion at the time.  

The Indian government held Vodafone liable for withholding tax to the tune of about Rs 22,000 crore, while the latter argued that it was not the Indian assets but the holding company overseas that had changed hands.  

In the ensuing litigation, the Supreme Court ruled that the gains arising from indirect transfer of Indian assets could not be taxed under the Income Tax Act, 1961.

Also Read: Vodafone arbitration award: India's appeal against verdict in senior court, hearing in Sept

However, in a circumvention of sorts, the then UPA government led by the Congress party brought in an amendment to the Income Tax Act via the Finance Act of 2012 with retrospective effect to bring such deals under the tax ambit.  

Tax demand of about Rs 14,000 crore was slapped on Vodafone. Similarly, resorting to the provisions of the Finance Act 2012, the government also raised a tax demand on Cairn, which had reorganised its India business in 2006.  

Both went into international arbitration against the tax demands and India lost the cases last year. Since December last year, when Cairn won the arbitration award and the Hague tribunal asked India to refund the amount confiscated, the company has been fiercely pursuing enforcement of the contract overseas identifying global Indian assets for seizure.  

Last month the company moved against Indian government-owned properties in Paris, and national carrier Air India in the US.  

With the Bill all set to be ratified by the Parliament, the government is now hopeful that the affected parties will take recourse to the provisions of the amendment.  

"The companies are very conscious about their top line as well as the bottom line. If one gets into an agreement with us now, one stands to gain immediately while resorting to the legal options may take longer as the law will take its own course. The current arbitration itself has taken so many years. A cash flow today is better than uncertainty in the future. A prudent company will look at all the pros and cons before taking a call on the issue," Bajaj said.  

The timing of the bill has put the government in a tight spot, especially in the context of the recent aggression displayed by Cairn in the enforcement of the arbitral award which came in December last year.  

The revenue secretary pointed out that correcting the retro tax issue had been a commitment of the BJP-led NDA government ever since it took over in 2014, but it had to wait for the arbitration outcome.  

In fact, it may be noted that former Finance Minister Arun Jaitley had assured the Parliament while presenting his first budget in July 2014 that the NDA government will not create any fresh tax liability retrospectively.

"Consequent upon certain retrospective amendments to the Income Tax Act 1961, undertaken through the Finance Act 2012, a few cases have come up in various courts and other legal fora. These cases are at different stages of pendency and will naturally reach their logical conclusion," Jaitley had said.  

Bajaj said now that the arbitration had reached its logical conclusion, it was time to show the commitment of the government announced in 2014.  

"We are coming to a resolution of the issue under our own legislations. This is not being done as a result of the arbitral award. We firmly believe that taxation is not an issue to be adjudicated under the Bilateral Investment Promotion and Protection Agreement (BIPA). We are in resolution mode as it has been the stated stand and commitment made by the government on the floor of the house. One had to wait for the logical conclusion of the arbitration tribunals whose decisions came only in September and December," Bajaj added.  

Bajaj quipped that the government is in favour of fair and stable tax laws.