Retro tax settlement: Government may issue rules this week

The government is likely to issue rules on settling retrospective tax cases this week after evaluating feedback from companies on the draft norms, a senior official said. The Centre is hopeful of a quick settlement of cases as the companies have indicated a willingness to indemnify the government against any future claims.

On September 7, Cairn Energy signalled it was nearing a solution to its dispute, telling shareholders that it expects $1.06 billion in a settlement with the Indian government. The other 16 companies, including Vodafone, are yet to publicly indicate their intent.

“Rules are being firmed up after comments from stakeholders… These should be announced soon,” the official said. After the final notification, the government is hopeful of settling some cases over the next six-eight weeks.


The finance ministry had on August 28 issued draft rules, seeking comments by September 4 from those engaged in retrospective tax disputes with the government. The draft rules said companies had to indemnify the government against any future claim and drop all ongoing legal challenges.

New Format Under Discussion
It also called for such an indemnity from all “interested parties” of the entities directly involved in disputes. Apart from undertaking to withdraw any pending litigation or proceeding before any forum and assurances that they won’t pursue any claims in the future, they had to pledge that other interested parties would not do so in future. ET had reported earlier that companies had expressed some reservations on this latter aspect.

A new format is under discussion to address these concerns, while providing adequate protection to the government. Companies have indicated a willingness to indemnify the government, another person said.

The rules offer up to 45 days from the date of final notification for litigants to provide an undertaking for settlement, and up to 15 days after submission for tax officials to accept or reject this. All litigation, arbitration and enforcement proceedings will have to be withdrawn within 60 days of the undertaking being accepted.

India had passed a law in the monsoon session of parliament scrapping the retrospective provision taxing the indirect transfer of assets, nullifying demands raised on transactions prior to May 28, 2012, which is when it came into force.

The law provides a mechanism for settling litigation, including disputes at international forums, with Cairn Energy, Vodafone and 15 others. The government will withdraw all tax demands levied retrospectively and refund taxes collected, without interest and penalty.

The government has collected Rs 8,089 crore in taxes in four of these instances, including Rs 7,880 crore from Cairn. India has filed an appeal against the $1.2 billion award in favour of Cairn Energy Plc by The Hague Court of Appeal in December 2020 and also against the arbitration award in the Vodafone tax dispute case. Cairn Energy has also filed cases in multiple jurisdictions to enforce the award.