Vodafone arbitration award: Issue discussed with PM Modi; Centre may challenge case

The government may soon take its decision on the arbitration award announced by the Hague-based Permanent Court of Arbitration (PCA) in the Vodafone tax dispute case. The matter has been discussed at the highest level, including with Prime Minister Narendra Modi, and the government may go ahead with challenging the award at the Singapore appellate tribunal.

The issue was recently discussed at a meeting in which PM Modi was also present but the final decision will most likely be taken in the next meeting after weighing in all the pros and cons, The Economic Times reported citing sources. The Centre has time till December to file a response to the arbitration award in the Vodafone retrospective tax dispute case.

The Centre’s response is stuck on two points — one view is the Centre should not challenge the verdict to send a positive signal to investors, while another view is the government should oppose it to reaffirm India’s right to tax. Officials in the favour of challenging the verdict say it’ll set a precedent for similar cases in the future. Solicitor General Tushar Mehta has already supported the move to appeal against the verdict.

The government may also be waiting for the outcome of an arbitration initiated against its levy of Rs 10,247 crore retrospective tax on UK’s Cairn Energy Plc before deciding on appealing against losing a tax case against Vodafone Group. An international arbitral tribunal is expected to give a decree within the next few days on the Cairn Energy Plc challenge to the Indian government.

The Vodafone tax case pertains to a long-standing legal dispute since 2012 when late finance minister Pranab Mukherjee amended income tax rules. This was done to nullify a Supreme Court ruling in the favour of Voda. Under the amended rules, Vodafone had to pay Rs 20,000 crore in retrospective taxes, including penalties. The centre said the tax liability arose because Vodafone failed to withhold capital gains tax after an $11.2 billion Vodafone-Hutchison Essar deal back in 2007.

In 2013, Vodafone invoked an India-Netherlands bilateral investment treaty, seeking a resolution to the tax demand imposed on it by enacting a tax law with retrospective effect to sidestep an SC judgement that went in the company’s favour. It moved the International Court of Justice (ICJ) in 2016 following no consensus between its and the government’s arbitrators in finalising a judge for resolving the tax dispute.

This year in September, the government lost the high-profile international tax arbitration case against Vodafone. An international arbitration court ruled the government, seeking Rs 22,100 crore in taxes from telecom giant 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. Business Today