The story of India’s ‘legacy’ tax issues is getting more confusing by the day. Finance minister Arun Jaitley did not remove the retrospective taxation statute in his first Budget, but promised to let the courts or arbitration panels deliver rulings that he would follow. He demonstrated his good intentions by not pursuing, in the Supreme Court, the Vodafone and Shell transfer pricing cases once the Bombay High Court ruled in their favour. Yet the Vodafone tax arbitration seemed to drag on and, worse, in the case of the UK-based Cairn Energy, the government did not even admit to the possibility of arbitration and, as a result, has not even appointed an arbitrator. To compound the mystery of just where India was headed, Jaitley allowed the taxman to issue demands to FIIs but then went and accepted the recommendations of the AP Shah panel saying the demands were illegitimate. On the eve of his overseas trip, he announced all major tax cases would be resolved in a few days; while overseas, he has been quoted as saying he was focusing on resolving a few big cases like Vodafone soon.
Which is why, the income tax department’s decision to pursue the Sanofi tax case in the Supreme Court is odd. After the taxman slapped a Rs 1,058 crore demand on Sanofi’s 2009 purchase of the Hyderabad-based Shantha Biotechnics, the Andhra Pradesh High Court had ruled in favour of Sanofi in February 2013—that is, after the retrospective tax had been brought on the statute. Given Jaitley’s rule in the Vodafone/Shell cases, the SC case should have been withdrawn since a court had ruled against the taxman in a retrospective tax case. You could argue, of course, that the SC appeal pre-dated Jaitley, but nothing stopped him from asking the taxman to withdraw the appeal, more so since this was practically what the Cabinet cleared in the Vodafone/Shell cases. But if the finance minister has no plans to do so, he should at least refer all cases to the AP Shah panel so that the uncertainty over them goes away. Right now, with so many different signals emanating from different actions of the government, investors can’t be blamed for feeling very confused.