No relief: Finmin dismisses Voda plea on retrospective tax

Dismissing Vodafone’s contention in the Rs 20,000-crore tax case, the Finance Ministry has decided to not offer any relief to the telecom giant in the controversial retrospective tax case and has prepared a reply to the company’s rejoinder which would be sent after the approval of the Prime Minister.

Vodafone had sent the notice to the government invoking the bilateral investment treaty with Netherlands saying that the retrospective amendment was not in the spirit of the Bilateral Investment Promotion Agreement (BIPA). It asked the government to abandon or amend the retrospective amendments, or face arbitration proceedings.

In reply to the notice , the government had said that they had already refunded the money as per the Supreme Court order and that such the company’s move was premature. Vodafone then sent a rejoinder to the government asking for an undertaking that the retrospective amendment would not apply to the company. If such an undertaking is not given to Vodafone it is clearly indicative that the retrospective amendment applies to them.

Under the terms of the amendment, Vodafone Group would have to pay about Rs 20,000 crore in capital gains tax, penalty and interest on its 2007 acquisition of Hutchison Essar. After the Supreme Court quashed the income tax department’s demand for sending a tax notice to Vodafone earlier this year, the government refunded the tax of Rs 2,500 crore, along with the interest, Vodafone had deposited earlier. While issuing the refund on March 18, the department told Vodafone the demand might be revalidated after the Finance Bill was passed

“We did not agree with Vodafone the Inter-Ministerial Group (IMG) on Vodafone has prepared reply of Vodafone’s rejoinder. The reply will be sent to the Prime Minister’s Office first. After approval of the PMO, it will be sent to Vodafone,” a senior official said after the meeting of IMG.

The government had earlier formed the IMG to look into the arbitration notice send by the telecom major under the India-Netherlands (BIPA).

The government has already replied to the initial notice arguing that tax matters are not covered under the BIPA. Following which the British telecom major sent the rejoinder seeking an assurance that the retrospective tax amendments would not apply to acquisition of Hutchinson’s stake in Hutch-Essar in 2007.

The notice to the rejoinder, which has been prepared by the IMG, will have to be approved by Prime Minister Manmohan Singh, who had taken over the finance portfolio following the exit of Pranab Mukherjee.

Following amendment to the Income-Tax Act with retrospective effect, Vodafone may be asked to pay Rs 20,000 crore tax, interest and penalty for its 2007 acquisition despite wining the tax case in the Supreme Court.

Agencies