Since the auto major has approached the Madras High Court, remedy under a treaty would now be barred, the centre said.
The Union government also informed the court that the state government does not have locus standi to challenge the international arbitration proceedings initiated by the automaker against India on alleged unpaid tax refunds of nearly $ 770 million.
In a counter affidavit filed in the plea by Tamil Nadu seeking staying the arbitration proceedings, the centre made it clear that jurisdiction of the international tribunal, constituted under the Comprehensive Economic Partnership Agreement (CEPA), can be decided only by the tribunal itself.
Additional Solicitor General G Rajagopalan made the submissions on behalf of the central government's department of heavy industry.
The Tamil Nadu government is not even a party to the CEPA, or the claim made by Nissan under the agreement, he said.
For this reason, Tamil Nadu does not have locus standi to make an application praying that the "international arbitration initiated by Nissan against India be injuncted."
However, the centre expressed hope that it would succeed in having the arbitration proceedings terminated by making jurisdictional submissions and causing Nissan to opt for domestic remedies pursuant to the MoU provisions.
The central government is fully prepared to litigate the issues pertaining to jurisdiction before the tribunal promptly, in full confidence that it would be positively received, the affidavit said.
Rebutting the claim, the Union government said mere existence of such a MoU would not prohibit Nissan from approaching an international tribunal constituted under the CEPA.
"It is submitted that the Union intends to object to the jurisdiction of the international tribunal on the ground that Nissan has already approached Indian courts due to which remedy under the treaty would now be barred, by application of the fork in the road clause," Mr Rajagopalan said.
In Fork-in-the-Road (FITR) clauses in bilateral investment treaties (BITs), the claimant investor must make a choice between pursuing its claims against the state either through the arbitration mechanisms provided in the relevant BIT or in local courts or other venues provided for in the relevant contractual mechanisms.
The centre raised strong objection to the averment made by Tamil Nadu that the government had entered into the CEPA with a view to coercing the state government into paying the alleged refunds.
The Union government enters into treaties to "strengthen international relations and further diplomacy on which the state governments cannot be consulted prior to the same," it was submitted.
After recording the submissions, Justice Anita Sumanth adjourned the plea to January 22 for further hearing.