In what could be an indication of the government’s thinking on the future course of action with regards to the Rs 20,000 crore Vodafone tax case, sources say that the Law Ministry is in favour of Government of India challenging the arbitration award which went In favour of Vodafone.
The government is likely to challenge the arbitration award announced by the Permanent Court of Arbitration (PCA) in Hague, in the Vodafone tax dispute case. Sources told CNBC-TV18 that the Law Ministry is in favour of the Government of India challenging the Rs 20,000 crore tax dispute in the Singapore High Court.
"The law secretary has informed the Finance Ministry that Solicitor General Tushar Mehta is in favour of challenging the arbitration award. Hence, the law ministry has sought that the Union of India must challenge the award and file proceedings to protect interests," sources told CNBC-TV18.
However, the Finance Ministry is yet to take a decision on the matter as North Block has referred the issue to an Inter-Ministerial Group (IMG), which includes stakeholders from the Revenue Department, Central Board of Direct Taxes, Department of Economic Affairs, Ministry of External Affairs, Law Ministry etc.
PM Narendra Modi reviewed the matter in a meeting recently, but no decision was taken, sources said. The IMG is likely to meet again and discuss the matter based on inputs by PM Modi.
"The IMG is expected to meet soon to make a final decision as PM Modi has reviewed the issue," sources said. The Centre has time until December to file a response in in the Vodafone retrospective tax dispute case.
The Centre has to take a calibrated approach on the matter given that any future action could not send a negative or positive signal to investors, while another view is the government should reaffirm India's right to tax.
The government would weighing its options as any decision could have a bearing on 15 other tax disputes, including the arbitration initiated against the levy of Rs 10,247 crore retrospective tax on UK's Cairn Energy Plc. An international arbitral tribunal is expected to give a decree on the matter in the next few days.
The Vodafone tax case pertains to a 2012 dispute when late Finance Minister Pranab Mukherjee amended income tax rules. This was reportedly done to nullify a Supreme Court ruling in favour of Vodafone. Under the amended rules, Vodafone had to pay Rs 20,000 crore in retrospective taxes, including penalties. The Centre had then said the tax liability arose because Vodafone failed to withhold capital gains tax after the $11.2 billion Vodafone-Hutchison Essar deal back in 2007.
In September 2020, the Government of India lost the tax arbitration case against Vodafone at the Permanent Court of Arbitration in Hague. The court ruled seeking Rs 22,100 crore in taxes from Vodafone using retrospective legislation, was in breach of the "guarantee of fair and equitable treatment" guaranteed under the bilateral investment protection pact between India and The Netherlands.