Some experts believe that the government's move would send a wrong signal to foreign investors, while others say investors would have to evaluate their decisions since the Bilateral Investment Treaty (BIT) now does not have tax disputes in its domain.
Mukesh Bhutani, managing partner, BMR Legal, said the nuanced approach of the government appeared to be that in its quest for foreign investment, India could not be considered to have waived its rights to evaluate and adopt an independent policy outlook, including tax laws. “It is premature to conclude on the outcome of the present events at this stage. Nonetheless, the decisive action of the government not accepting the award is progression, and not the deviation, which was expected by many. It exudes India’s confidence that it continues to have faith in its revised BIT model, which excludes tax policy,” he said. New foreign investors, therefore, need to take a calibrated decision and factor in the dynamic tax environment while evaluating their return options, Bhutani said.
Amit Maheshwari, tax partner, AKM Global, said, “It is unfortunate as this case just doesn't seem to end.” Even though this retrospective taxation was universally criticised, even by the ruling party itself when it was in opposition, the law remains in statue, Maheshwari said. “This step of going to appeal does not send the right message to foreign investors,” he added.
In the case of Cairn, India will challenge the verdict, given the sizeable damages worth over Rs 8,800 crore, officials said. Besides, India will follow a uniform approach in the two cases as both pertain to retrospective legislation and will set a precedent, they added.
The British telecom firm had filed arbitration against India over a 2012 legislation that gave the government powers to retrospectively tax deals like Vodafone’s acquisition of a 67 per cent stake owned by Hutchison Whampoa in 2007. It had challenged the tax demand of Rs 22,100 crore, including interest and penalty, under the Netherlands-India bilateral investment treaty.