New Delhi, April 11 (IANS) The Indian government on Monday said that it will not allow the Cairn India-Vedanta Ltd. merger unless the former's over Rs.10,200 crore retrospective tax issue is settled.
"Cairn-Vedanta merger cannot be allowed unless the tax liability is settled. Cairn will have to first settle the tax liability," a senior official told reporters here.
"Government will notify time limit for settling retrospective cases under settlement window announced in budget. It will be a time-bound window. Notification will come after passage of the Finance Bill by mid-May," he said, adding the government continues to follow the judicial process in both the Cairn and telecom major Vodafone cases.
The IT department notice was issued on February 4 before Finance Minister Arun Jaitley in his budget speech on February 29 made a one-time offer to waive interest and penalty if companies paid the principal amount to settle the retrospective tax disputes.
The Anil Agarwal-led natural resources firm Vedanta Ltd. received approvals last September from both the Bombay Stock Exchange and the NSE on the company's proposal to merge with its hydrocarbons subsidiary Cairn India.
Merging Cairn India with itself would provide Vedanta access to the oil explorer's cash and help reduce its debt burden. Vedanta took majority control of Cairn India for $8.67 billion in 2011 and holds 59.9 percent in the latter through its various units.
Meanwhile, British oil major Cairn Energy has called for an annual general meeting of shareholders on May 12 in London to approve, among other things, the proposal to dispose of its 9.82 percent residual stake in Cairn India.
"One of the resolutions seeks approval of the renewal of the existing authority (renewed at last year's AGM held on 14 May 2015) to dispose of all or part of the Group's residual interest in Cairn India," the company said on its website.
The proposal comes against the backdrop of the retrospective tax demand of Rs.29,000 crore from the Indian tax department Cairn has received, on alleged capital gains the company made in a 2006 reorganisation of its India business.
"The aggregate amount of Rs.29,000 crore excludes any applicable penalty, which may also be applied to the final assessment (potentially up to 100 percent of the final assessment order, excluding interest)," Cairn said, adding the amount comprises final assessment of Rs.10,200 crore plus interest back dated to 2007 of up to Rs.18,800 crore.
Asserting that it would contest the assessment proceedings, it said it was pursuing its right to appeal against the order under the Indian law on the retrospective tax and penalty, besides protecting its assets from any legal action.
"The total assets of the Cairn subsidiary against which the tax authorities are seeking to pursue a tax claim are $477 million (including principally the group's near 10 percent shareholding in Cairn India Ltd.) and any recovery by the Indian authorities would be limited to such assets," Cairn said last month.
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