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Vodafone left to fight its Rs20,000 retro tax burden

11 July 2014

Telecom major Vodafone will continue the international arbitration process in the Rs20,000-crore tax dispute after finance minister, after Arun Jaitley clarified that that the government has no plan to drop retrospective amendment in tax laws.

"We note the FM's announcement that existing cases arising from the 2012 retrospective tax law should follow the lawful process in which they are currently being adjudicated," Vodafone said in a statement.

Vodafone will therefore continue process of international arbitration initiated under the India-Netherlands Bilateral Investment Treaty, it added.

Presenting the union budget on Thursday, finance minister Arun Jaitley said that consequent to certain retrospective amendments introduced to the Income Tax Act 1961 through the Finance Act, 2012, a few cases had come up in various courts and other legal fora.

"These cases are at different stages of pendency and will naturally reach their logical conclusion," he added.

Speaking to reporters after his budget presentation, the finance minister said Parliament has the jurisdiction to legislate retospectively, although the government may not fall back on that piece of legislation as a matter of policy.

Governments, he said, do not ordinarily legislate to create fresh liabilities, but just to collect some old taxes. But, if some technical problem arises, governments may correct them through fresh legislation, he said.

However, he said, despite the 2012 amendment, the government will not actively pursue any fresh cases or dig up fresh ones.

Assessing officers will not issue notices although they will report cases to CBDT, which will have a permanent mechanism to look into it so these issues are resolved.

Vodafone said the "notion" of retrospective withholding obligation is both "unjust" and constitutes "imposition of a burden of impossibility of performance".

"From the outset, we have maintained that there was no tax to pay, a view upheld by India's Supreme Court, and the retrospective law in any case concerned tax on the gain made by Hutchison: Vodafone, as the buyer, clearly made no capital gain whatsoever," Vodafone said: it said.

The Supreme Court had ruled in Vodafone's favour in 2012, saying the company was not liable to pay any tax over acquisition of assets in India from Hong Kong-based Hutchison (See: Vodafone wins tax case in Supreme Court).

But the government amended tax laws with retrospective effect to nullify the Supreme Court judgement and claim taxes (See: Despite SC ruling, Vodafone unlikely to evade taxman).

In April, Vodafone International Holdings BV served an arbitration notice under the Bilateral Investment Protection and Promotion Agreement between India and the Netherlands for resolving its tax dispute (New tax law: Vodafone threatens arbitration against governmen).

Following the notice, the previous UPA government had, on 15 May, decided to withdraw an offer for conciliation of the dispute.

While the basic tax demand was Rs7,990 crore, the total outstanding, including interest and penalty, now works out to Rs20,000 crore.

UK-based Vodafone Plc bought Hong Kong-based Hutchison Wampoa's stake in the latter's Indian joint venture with the Essar grop, Hutch Essar, through Netherlands based Vodafone International Holdings BV to circumvent Indian and British laws.

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