Setback to govt’s reconciliation talks with Vodafone

Pradeep Thakur,TNN | Sep 17, 2013, 06.46AM IST
NEW DELHI: The finance ministry's efforts to settle Vodafone's over $2 billion tax dispute through reconciliation has received a setback with the Law Commission likely to tell the government that amendments in the Arbitration and Reconciliation Act, as asked by the law ministry, may not help settle the case out of court.

The law ministry had asked the Law Commission to submit a report on suggestions to amend the Arbitration and Reconciliation Act where cases such as Vodafone's -- arising out of retrospective amendment in the Income Tax (I-T) Act — could be settled avoiding international arbitration.

The British telecom major wanted to settle the tax dispute under the United Nation's Commission on International Trade Law rules which India had rejected. The government had said any settlement would have to be strictly under Indian laws.

Sources in the Law Commission said any settlement with Vodafone could be made either through I-T's settlement commission or an amendment had to be brought in the I-T Act providing for reconciliation and settlement of tax disputes other than through the settlement commission.

Vodafone, however, has refused to go to the I-T's settlement commission as it will lose the right to any international arbitration once it approaches the commission. The government had earlier offered the telecom giant waiver of penalty if it approached the settlement commission and paid the tax dues and interest on it.

Also, if the company approaches the settlement commission, it has to deposit in advance all tax dues and interest on it before the case is listed for hearing. The government though had initiated conciliation talks between Vodafone's representatives and the law secretary.

The Law Commission was asked by the government to frame guidelines on arbitration and reconciliation so that it could bring in amendments in laws which could help it drag some of the multinational companies engaged in tax disputes to Indian courts and subject them to settlement.

The government has been demanding more than Rs 20,000 crore from Vodafone on account of tax, interest and penalty on gains made by Hutchison when it sold its India assets to the company in 2007. The company has, however, refused any offer of settlement of dispute under Indian laws.

At one point, the government was even contemplating bringing in a fresh clause in the retrospective amendment to I-T Act where tax demand raised on past cases could automatically get penalty waiver.

Vodafone had also won a case against the government in the Supreme Court in January 2012 which ruled that capital gains tax was not applicable to the company. The apex court had also asked the government to refund the telecom giant's Rs 2,500 crore with interest which it had paid against the tax dues.