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 USD 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.

The government initially refused to honour the award but in August 2021 brought a law to scrap all retrospective tax demands and refund money collected but without any interest or penalty.

The change of heart followed Cairn initiating seizure of the Indian government’s overseas assets — ranging from flats used by its diplomatic staff in Paris to Air India planes in the US — to recover the refund due.

As part of the settlement reached with the government over the levy of back taxes, Cairn withdrew all cases that were brought to collect the tax refund ordered by the international arbitration tribunal after rescinding retrospective raising of demand.

Simon Thomson, chief executive, Capricorn Energy, commented: “India has a special place in our company’s history and we are very pleased that this issue has now been concluded.”

He said the company’s investment in India began in the 1990s when it was one of the first international businesses to participate in the country’s oil and gas industry with operations in Andhra Pradesh and then Gujarat.

But it was the discovery of the Mangala oil field in Rajasthan in January 2004, one of the biggest ever hydrocarbon discoveries in India, that had the biggest impact.

“The company ultimately made more than 40 discoveries in the area and constructed the world’s longest heated pipeline to take the crude from the Mangala Processing Terminal to the coast, with production commencing in August 2009. Today, the terminal continues to provide more than a third of India’s entire crude oil production,” he said.

Seeking to repair India’s damaged reputation as an investment destination, the government in August 2021 enacted a new legislation to drop Rs 1.1 lakh crore in outstanding claims against multinationals such as telecom group Vodafone, pharmaceuticals company Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn.

About Rs 8,100 crore collected from companies under the scrapped tax provision are to be refunded if the firms agreed to drop outstanding litigation, including claims for interest and penalties. Of this, Rs 7,900 crore is due only to Cairn.

Subsequent to this, the government in November 2021 notified rules that when adhered to will lead to the government withdrawing tax demands raised using the 2012 retrospective tax law and any tax collected in the enforcement of such demand will be paid back.

For this, companies are required to indemnify the Indian government against future claims and withdraw any pending legal proceedings.

Cairn had on November 26, 2021, initiated proceedings to withdraw lawsuits it had filed in several jurisdictions to enforce the international arbitration award, which had overturned the levy of Rs 10,247 crore retrospective taxes and ordered India to refund the money already collected.

First, the lawsuit brought in Mauritius for recognition of the arbitration award was withdrawn, followed by similar measures in the courts in Singapore, the UK, and Canada.

On December 15, 2021, it sought and got ‘voluntary dismissal’ of a lawsuit it had brought in a New York court to seize assets of Air India to recover the money due from the government. On the same day, it made a similar move in a Washington court where it was seeking recognition of the arbitration award.

Recognition of arbitration award is the first step before any enforcement proceedings like the seizure of assets can be undertaken.

The critical lawsuit in a French court, which had attached Indian properties on the petition of Cairn, was withdrawn thereafter and one in the Netherlands too was dropped.

The company thereafter provided documentary proof of the withdrawal of cases and furnished an indemnity bond. After detailed scrutiny of the document, it was refunded Rs 7,900 crore.   (PTI)

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