Tax Department to pursue the demand notice

Unable to reach any breakthrough in the ongoing talks with Vodafone in the Rs.20,000-crore tax dispute, the Union Finance Ministry is learnt to have decided to withdraw its conciliation proposal and move ahead with the collection of the levy from the U.K.-based telecom major for making capital gains while acquiring Hutchison Whampoa’s stake in Hutchison Essar in 2007.

The Union Finance Ministry has floated a Cabinet note seeking to withdraw the conciliation process with Vodafone International Holdings BV.

The move comes after the Finance Ministry’s proposal to withdraw the conciliation process was supported by the Law Ministry. Now, after the Cabinet’s nod, the Income-tax Department would pursue the tax demand notice that has been kept in abeyance in view of the conciliation talks, which were given a go ahead by the Cabinet in June last year, government sources said.

While the basic tax demand raised by the I-T Department is to the tune of Rs.7,990 crore, the penalty and accrued interest has taken this figure to Rs.20,000 crore. Sources said the insistence on the part of Vodafone India to club a separate Rs.3,700 crore transfer-pricing case of its BPO firm, Vodafone India Services, with the capital gains tax issue led to the stalemate after the Finance Ministry refused to budge. The I-T Department had slapped another notice on the telecom firm regarding the transfer-pricing case where Vodafone allegedly issued undervalued shares in its BPO arm to Vodafone Teleservices Mauritius in 2007-08.

Efforts made by The Hindu to get an official reaction from Vodafone on the issue did not materialise till the time of filing the story. Notably, in June last year, the Cabinet had approved non-binding conciliation with the U.K.-based telecom major under the Indian arbitration law and not under the United Nations Commission on International Trade Law (UNCITRAL), as sought by Vodafone.

Significantly, after the Supreme Court ruled in Vodafone’s favour in the tax case in 2012, the Centre subsequently made amends in the law to make retrospective tax claims on concluded deals.