On the heels of the Permanent Court of Arbitration at The Hague rejecting the Indian tax authorities’ Rs 24,500 crore retrospective tax demand on British energy major Cairn PLC, the government has chosen to continue to pursue a similar – and previously lost case – the Rs 14,500 crore demand on Vodafone, which was also turned down by the same forum as illegal and violative of the India-Netherlands Bilateral Investment Protection Treaty.
Since it has chosen to appeal the Vodafone ruling, it appears almost certain that it will also challenge the Cairn ruling. One wonders just how much the Government will be willing to spend on litigation before it realises that these tax demands raised on Cairn India and Vodafone, which have already been ruled invalid by multiple courts, including our own Supreme Court (before being reinstated via the infamous “retrospective amendment” to the tax law) are a bad idea based on a bad law and deserve to be buried for good. The bill is already high – Vodafone has already won $5.47 million as legal costs besides unspecified damages, while Cairn has been awarded a staggering $1.4 billion as damages.
Costs apart, it is puzzling why the BJP government, which had strongly opposed the retrospective amendment during the UPA government’s tenure as “tax terrorism”, has chosen to retain the amendment on the statute books, despite having ample opportunity, and the legislative majority in Parliament, to have axed it. While the government has stressed its sovereign right to levy taxes as justification for raising these demands, it must be noted that none of the courts – both domestic and international – which have heard these matters, have disputed India’s right to levy taxes.
They have only held that the demands, based on a retrospective amendment of the laws, were violative of investment protection treaties which were sovereign agreements guaranteeing fair and equitable treatment to foreign investors. Gracefully accepting the original Supreme Court ruling would have strengthened India’s image as a nation with policy stability and rule of law. Instead, by first passing the patently unjust retrospective amendment, and then choosing to pursue these demands in the face of repeated legal losses, India has chosen to scupper its own bid to woo global investment.