It is a good question considering the bill for scrapping the draconian/toxic law of 2012 was passed through The taxation laws (amendment) Act, 2021 and it received Presidential assent on August 13, 2021.
The then finance minister, Pranab Mukherjee, introduced the bill with specific players in mind, who according to the finance ministry had evaded taxes on the transaction deal which had assets based in India
First Target: Hutchison-Vodafone Deal of 2007
The IT Department claimed that there was tax evasion of US $2.5 Billion.
Second Target: Cairn Energy
Cairn Energy had reorganized its business and it is claimed by the IT department that the company was able to make windfall gains in 2006–07.
The following are the sequence of events
The IT department is now demanding – US $1.2 Billion + US $500million(interest) (approx. Rs 24,500 Crores)
Prior to the initiation of any action, Cairn Energy in 2010-11, had sold the majority stake in Cairn India amounting to ~59% Vedanta.
Outcome of the Tax Demands
The telecom giant’s Indian arm was unable to make much headway in the Telecom market and also with the Indian Government.
With the entry of Reliance Industries owned -Reliance Jio Infocomm, the already competitive market turned into a blood bath with many telecom service providers shutting shop while the remaining entering into a phase of cash burn to retain users.
In this quest, it merged with Idea to form Vodafone-Idea. This though turned to be a Band-Aid with the merged entity unable to report even a single quarter of profit to date!
With mounting losses, business was turning to be unsustainable. To add to the woes, there was a demand for the AGR dues of Rs 50,400 crore
The telecom service provider is on the verge of collapse with a net loss for the April-June 2021 quarter at Rs 7,319.1 crore and revenue fall of 4.7% quarter-on-quarter to Rs 9,152.3 crore
The collapse of Vodafone-Idea during the Covid-19 era can lead to
- Mass unemployment
- Haircut for the lenders
- Denting government’s claim regarding ease of doing business
The dispute went to international courts with the arbitration tribunal in Hague awarding the case to Cairn Energy and asking India to pay US $1.7 billion in Dec 2020.
To enforce the verdict, Cairn Energy filed a lawsuit in multiple courts to seize the assets of Air India as it stands as a representative of the Indian Government.
As an entity on the verge of disinvestment, Air India, if it gets embroiled in some unrelated topic, then the prospects of it finding a new owner may be as well and over.
Owing to this, the government is trying to cut losses and get out of the legal hassle that can endanger the workforce in the country or the country’s image, or the country’s sovereign assets.
Also, you may like to read more about Vodafone Idea, you can check this out: https://garao.in/2021/08/08/what-is-the-future-of-the-stock-vodafone-idea-under-the-current-circumstances/
Hope this helps. Happy Investing!
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- Arbitration case: Cairn Energy offers to invest $1.2 bn if India relents
- Cairn Energy dispute | Vigorously defending case against arbitration order, says govt.
- Explained | India’s Dispute With Cairn Energy & $1.7 Billion Arbitration Award
- AGR dues: Govt must work to ease Vodafone-Idea’s pain
- Vodafone Idea Q1 Results: Net Loss Widens As Revenue Falls
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