The Indian government has asked a federal court in Washington to dismiss Britain's Cairn Energy suit seeking enforcement of a USD 1.2 billion arbitral award, saying it had sovereign immunity under US law.Cairn had in May asked a US federal court to force Air India to pay a USD 1.26 billion arbitration award the firm had won in December. The government filed a 'Motion to Dismiss' petition in the US District Court for the District of Colombia, saying it lacked subject matter jurisdiction in the dispute between Cairn and the Indian tax authority.

This comes a week after the government enacted legislation to scrap a tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas, but business assets were in India. That rule had been used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including Rs 10,247 crore on Cairn. Officials said rules for withdrawal of such tax demands are in the process of being framed. "One of the requirements for the dropping of the retrospective tax demands is that the parties concerned have to give an undertaking for withdrawal all cases against the government/tax department. So, while all this is in process, the government is obligated to respond in any legal matter where there is a time bar for doing so," an official explained.