In the Budget for 2016-17, Finance Minister Arun Jaitley made a one-time offer to waive interest and penalty if the companies against whom tax demands have been made using retrospective tax law, paid the principal amount to settle the disputes.
"What we have said in Budget speech is subject to the company choosing the settlement window. Till the time they do not come for settlement, the normal recovery process will continue and that is why the interest component has been added to the tax demand," a top government source said.
The assessment order added interest of Rs 18,800 crore from 2007 on top of the principal amount of Rs 10,247 crore.
The tax demand notice came at a time when the government had insisted that it will not raise any fresh tax demand using retrospective tax legislation.
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Sources said as per Income Tax rules, an assessment order issued has to be closed within two years and the notice issued now is to close that assessment.
The source said the interest has been added to the principal amount as part of normal tax recovery proceeding.
Cairn yesterday said it strongly contests the basis of "attempt to retrospectively tax the group for an internal restructuring."
It has initiated international arbitration to settle the tax dispute and is seeking compensation for the USD 1 billion value since the tax notice.
"The total assets of the Cairn subsidiary against which the tax authorities are seeking to pursue a tax claim are USD 477 million (including the group's near 10 per cent shares in Cairn India Ltd) and any recovery by the Indian authorities would be limited to such assets," it had said yesterday.
It listed Cairn India Ltd on stock exchanges through an initial public offering (IPO) thereafter. Through the IPO it raised Rs 8,616 crore and then in 2011 went on to sell majority stake in Cairn India to mining giant Vedanta Group for USD 8.67 billion.
Cairn Energy still holds 9.8 per cent stake in Cairn India which the I-T Department has barred it from selling.