‘Vivad se Vishwas an option to resolve Cairn, Voda disputes’
The ongoing tax amnesty scheme, Vivad se Vishwas, is a viable option within the legal framework to amicably resolve retrospective tax litigation between the Indian government and two companies – Cairn Energy Plc and Vodafone Group Plc -- that together involve a sum of at least ₹30,000 crore, including interest and penalty, people aware of the development said.
It offers an ideal solution for both the Indian government and the two companies to settle the issue quickly, the people added, requesting anonymity.
Citing a clause in the scheme, two of the people cited above said Vivad Se Vishwas (literally, from dispute to trust) could reduce total tax liabilities of Cairn and Vodafone by up to 50% apart from waiving interest and penalties. According to the Income-Tax Department's website, the particular clause says: “If an issue in taxpayer’s pending appeal already decided in favor of taxpayer by higher appellate forum or if [Income-Tax] Department has filed appeal, amount payable is 50% of aforesaid amounts.”
A third person, however, disagreed on the matter. He said the clause was applicable for cases heard in domestic appellate forums only and not international tribunals.
A fourth person said: “It would depend on interpretation of the law, and government could make some special dispensation in order to resolve the two cases which are lingering on for about a decade.”
“According to the scheme, the issues have already decided in favour of assessee [Cairn and Vodafone]. The Income-Tax Department has already appealed in the case of Vodafone and has decided to appeal against the tribunal’s verdict on Cairn. Hence, this scheme is available to the companies, and accordingly the tax amount payable in both cases could be reduced by 50%,” this person added.
The first person mentioned above said the government and companies may discuss possible solutions to the disputes. “Vivad se Vishwas is one such solution, which is expected to be discussed when senior executives of Cairn will meet with government officials this week. Else, Indian authorities are legally bound to contest verdicts of the foreign tribunals as per the law of the land as no investment treaties impinge upon the sovereign’s taxation rights,” he said.
On September 25, 2020 an international arbitration tribunal in The Hague, the Netherlands, ruled that the Indian government’s decision to retrospectively amend the Income-Tax Act, 1961 in the 2012-13 budget to impose a tax liability on Vodafone, along with interest and penalties, was not consistent with an investment treaty signed between India and the Netherlands.
The Act was amended during the tenure of then finance minister Pranab Mukherjee after Vodafone won a Supreme Court verdict in its favour on a ₹11,000 crore tax dispute with the government.
Another arbitration tribunal, constituted under the agreement between UK and India for the promotion and protection of investments and the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL), on December 21 ruled in favour of Cairn. The retrospective amendment of the Income Tax Act in 2012 was applied to Cairn, when it was exiting from Cairn India Ltd in January 2014. The initial demand was for ₹10,570 crore.
The Indian government moved the high court of Singapore to set aside the September 25 award in case of Vodafone and is considering a similar measure in the case of Cairn.
Vodafone Group and the finance ministry did not respond to email queries on this matter. Cairn Energy Plc declined to comment.
One expert said the tax amnesty scheme offers an opportunity for the government and the department to settle the issue.
Abhishek A Rastogi, a partner at law firm Khaitan & Company, said: “The ongoing tax amnesty scheme, Vivad se Vishwas, is a pragmatic option to amicably resolve retrospective tax litigation between the Indian government and two separate companies i.e. Cairn Energy Plc and Vodafone Plc. In fact, the scheme could be completely customised to address retrospective amendments and bilateral investment treaties. The resolution will be beneficial to both taxpayers from savings perspective and to the government from the global perception perspective.”
But according to Lokesh Shah, partner at law firm L&L Partners (formerly Luthra & Luthra), the companies may receive only interest and penalty waivers under the tax amnesty scheme. “One possible option for Vodafone and Cairn would be to opt for Vivad se Vishwas scheme. This would mean payment of 100% of the tax liability. Considering such huge liability, Vivad se Vishwas, may not be a commercially viable option,” he said.
“The option of paying 50% of the tax amount under Vivad se Vishwas scheme applies only if the issue is decided in favour of the taxpayer and it is the income-tax authority who is contesting the matter in an appeal or a writ petition or a special leave petition. This is not the case with Vodafone and Cairn,” he added.