India may not accept arbitration orders annulling Cairn, Vodafone tax demands

India may not accept international arbitration orders annulling tax demands on British firms Vodafone Plc and Cairn Energy, a senior official said, adding the tax department would continue with recovery actions.

The government, he said, believes that taxation is not covered under bilateral investment protection treaties, which the two British firm have taken refuge under to initiate arbitration, and as such cannot be arbitrated.

While the final hearing in Cairn Energy Plc's challenge to a Rs 10,247 crore retrospective tax demand will begin in August in The Hague, an international arbitration tribunal will in February next year begin hearing in British telecom giant Vodafone's challenge to India using a retrospective legislation to seek Rs 22,100 crore in taxes.

"We believe that the arbitration panel cannot decide on the tax demand," the official told PTI.

India's main contention in both the arbitrations is that taxation is not covered under any bilateral investment protection treaty and as such cannot be arbitrated. It is challenging the jurisdiction of such panels to adjudicate on tax matters.

"If they overrule the tax demand, then India will not accept the arbitration order. We will continue with tax recovery proceedings," he said. "If the panel rules that tax demand is not proper, then it is questioning the sovereign, which we will not accept."