The government has asked Vedanta to make a buyback offer for Cairn UK’s 9.8 per cent equity in the company, attached by the tax department for non-payment of dues. The Anil Agarwal-led company is yet to get back to the government, according to sources.
The recovery was initiated after the Edinburgh-based Cairn UK failed to pay Rs 10,247 crore tax by June 15 on capital gains. The claim arose through a retrospective amendment to the Income Tax Act. This comes within four months of the Income Tax Appellate Tribunal (ITAT) upholding the demand of the income tax department.
Cairn UK held 9.8 per cent shares in Cairn India, which was merged with Vedanta. The 200-million shares with the tax department are valued at around Rs 5,200 crore. The current market price of the Vedanta stock is Rs 261 a share. The shares have been attached for more than three years now.
A source told Business Standard that the tax department was expecting a buyback offer from Vedanta.
The tax department is also considering other options, including putting the stake up for sale. The shares now belong to the government and can be disinvested. The revenue department could seek the opinion of the Department of Investment and Public Asset Management on this matter.
The government is targeting the first week of September for a decision on the sale. Cairn UK is yet to get back on the tax dues, according to sources in the know.
The UK oil major may also to face a penalty of around 300 per cent, amounting to Rs 30,000 crore. The tax department has till September to impose a penalty on Cairn.
The tax demand is in respect of Cairn Energy transferring shares of Cairn India Holdings to Cairn India as part of an internal group reorganisation in 2006-07. This gave rise to different interpretations on whether the UK-based company made capital gains preceding an initial public offering (IPO) by Cairn India.
At the time of the IPO, ownership of the India assets was transferred from Cairn UK Holdings to a new company, Cairn India. In 2006, Cairn India acquired the entire share capital of Cairn India Holdings from Cairn UK Holdings. In exchange, 69 per cent of the shares in Cairn India were issued to Cairn UK Holdings. Hence, Cairn Energy, through Cairn UK Holdings, held 69 per cent in Cairn India.
Later, in 2011, Cairn Energy sold Cairn India to mining billionaire Anil Agarwal’s Vedanta group, barring a minor stake of 9.8 per cent.
If the tax department decides not to sell the stake, it will earn an annual dividend of Rs 600-700 crore from Vedanta.
The tax department has also adjusted a Rs 1,500 crore refund due to Cairn.
Vedanta is also transferring the Rs 660 crore held in an escrow account to the tax department.
Cairn had approached the Securities and Exchange Board of India last month complaining about the non-payment of dividend worth Rs 670 crore by the Vedanta group.
Cairn Energy’s appeal to the international tribunal in London for an interim order to restrain the Indian government from recovering tax dues was rejected on June 12. The final hearing in the case is scheduled for January 2018.
Officials in the tax department refused to comment on the matter.
Cairn Energy has not yet moved any high court challenging the ITAT order. The tax department has filed a caveat in a high court against any stay demand by Cairn Energy on the order of the tax tribunal.