British Foreign Secretary Philip Hammond raised concerns in India on Thursday over a £1 billion retrospective tax bill charged to British oil explorer Cairn Energy hours before he arrived in the country seeking to improve business ties.
Hammond said Finance Minister Arun Jaitley explained the Cairn case was started by the previous government and that he was powerless to stop it, but repeated his promise of no fresh retrospective tax litigation.
Cairn Energy earlier this week filed a formal dispute against the demand from the Indian tax department, in the latest high-profile tax row to hit Asia's third-largest economy.
The dispute is particularly embarrassing for Prime Minister Narendra Modi's government which is trying to attract global businesses. Jaitley is scheduled to arrive in London on Friday to drum up investments and unveil a statue of Mahatma Gandhi.
"The tax demand made to Cairn was very unwelcome," Hammond said after talks with Jaitley.
"I've had a very clear indication from Mr Jaitley...who is clear and categoric that this government will not be issuing any further notices under the retrospective tax legislation," he told reporters in New Delhi.
Hammond's meetings in Delhi coincided with the 85th anniversary of Gandhi's "salt march", a campaign of tax resistance against colonial British capitalism.
Modi's government had sought to move towards a tax-friendly regime to boost much-needed foreign investment and reduce the aggressive tax battles that during the last government embroiled multinationals including Vodafone Group, Royal Dutch Shell, IBM and Microsoft.
Jaitley's pledge not to use the legislation to issue new tax notices does not stop the courts from pursuing cases which began under the previous administration.
"There are legacy cases that are going to have be dealt with in courts," Hammond said.
Britain is keen to build closer commercial ties with its former colony, now the world's fastest growing major economy.
