The Government will take a decision on withdrawal of conciliation process with Vodafone on ₹20,000-crore tax dispute after the transfer pricing matter is resolved. The Cabinet discussed a proposal from the Finance Ministry to withdraw the June 2013 decision for talks. Now, it appears that the Government does not want to take a decision in haste.
A senior Finance Ministry official said, “We have to ask Vodafone that both of us should try to an early resolution at Income-Tax Appellate Tribunal.” Once this is disposed, then a final decision will be taken.
There are two separate notices issued by the tax department — one related with capital gains tax dispute on acquisition of Hutchison Whampoa’s stake in Hutchison Essar by Vodafone in 2007. The other is the transfer pricing dispute in the Vodafone India Services (P) Ltd case involving ₹3,700 crore.
The latter is pending before the ITAT, which in December had stayed the tax claim by the Department and asked the company to deposit ₹200 crore as initial payment and submit bank guarantees for the remaining sum. The tribunal will hear the case from March 19 and is expected to take some more time to dispose. So, the new Government will take a final call. Earlier this month, the Finance Ministry circulated a draft Cabinet note seeking withdrawal of the conciliation talks after Vodafone demanded that the ₹3,700 crore transfer pricing row be clubbed with the capital gains tax case.
It followed a notice under Bilateral Investment Promotion and Protection Agreement by Vodafone International Holdings BV to the Government over the tax dispute. It said the amendment to the IT Act will cause Vodafone International Holdings substantial financial loss.
The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa’s stake in Hutchison Essar. While the basic tax demand for the 2007 acquisition is ₹7,990 crore, the outstanding dues, including a penalty of a similar amount and accrued interest, run into ₹20,000 crore.
In 2012, the Government changed the rules to enable it to make retrospective tax claims on concluded deals.