Indian government wants an end to Retro Tax litigation

After scrapping the retro tax law, the government now wants a rapid end to all ongoing litigations.

 Indian government wants an end to Retro Tax litigation

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• The story: The government of India legislated the retrospective tax law in 2012, to nullify Supreme Court verdicts in some major tax cases. The new government pursued those cases vigorously since 2014, despite promising earlier to end "tax terrorism". It lost all cases in international tribunals.
• Scrap the law: Finally, the Income-Tax (I-T) Act was amended to junk the contentious retrospective taxation provision, in July 2021. The government then reached out to 17 affected companies to withdraw cases from various judicial levels and derive the benefit of the legal correction.

1. This is a "government first move" for settling the retrospective cases. If these companies decide not to withdraw cases pertaining to the 2012 legislation on the indirect transfer of Indian assets, the govt. would be stuck again.
2. The rules under the Taxation Laws (Amendment) Act, 2021, will formalise the process.
3. The government collected about Rs 8,000 crore from three of the 17 companies — Rs 7,900 crore from Cairn Energy, Rs 44.7 crore from Vodafone, and Rs 48 crore from WNS Capital — which it proposed to refund on certain conditions getting fulfilled (withdrawing pending litigation and furnishing an undertaking that no claim for cost, damages, interest, etc. would be filed).

• You or Me: Earlier the government had said that the legislation had been scrapped, and companies must reach out to the government for settlement. Now, it has reached out to companies!

1. The Central Board of Direct Taxes (CBDT) Chairman J B Mohapatra wrote to the jurisdictional officers — the principal chief commissioners of I-T — to approach those cases that were likely to benefit from the new amendments to the retrospective taxation.
2. Why so? The government now wants their quick judicial closure. These cases are a big cost for the government too.

• Specific examples: In one of the cases, Earlyguard, a British subsidiary of Japanese conglomerate Mitsui & Co., commenced arbitration under the India-UK bilateral investment treaty (BIT) in May 2021 over the Rs 2,400-crore tax demand related to a transaction that took place in 2007.

1. Brij Mohan Khaitan Group-controlled McLeod Russel, the largest integrated tea conglomerate in the world, was the first Indian company to challenge the retrospective amendments to tax laws in the Calcutta High Court (HC), alleging that they were unconstitutional and arbitrary.
2. The IHC Mauritius Corporation and SABMiller plc had filed a case in the Bombay HC.
3. Besides the three companies — Cairn, Vodafone, and WNS Capital — there isn’t much to refund the other players.

• Global backlash: India lost the international arbitration with Cairn Energy at The Hague in December 2020, and the former was given an award of $1.2 billion. India appealed it in March '21 and a hearing for setting aside the order is scheduled in September '21. The government wants London-based Vedanta Resources to withdraw arbitration in Singapore as part of the settlement with Cairn Energy. Vedanta sought damages worth close to Rs 5,000 crore under the India-Singapore investment treaty over a significant decline in share value due to the Rs 10,250-crore tax notice to its erstwhile subsidiary Cairn India. The Indian entity subsequently merged with Bombay Stock Exchange-listed Vedanta, leading to Cairn Plc holding in Vedanta as well. India also lost international arbitration against Vodafone in September 2020, against which India filed an appeal in Singapore.
• Summary: A sordid saga is finally drawing to an end, and hopefully, such regressive laws may never be enacted ever again.
• EXAM QUESTIONS: (1) Explain the reasons the government of India legislated the retrospective tax law in 2012. Why did later governments not scrap the same? Explain. (2) What are the constitutional and judicial problems inherent in any retrospective tax law? Explain analytically.
  

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