Finance Minister P Chidambaram said, “… since they (Vodafone) have issued a fresh arbitration notice, the original offer of a non-binding conciliation should be taken as withdrawn.”

The government has decided to withdraw the offer of non-binding conciliation to Vodafone and defend its case in the international arbitration being planned by the UK telecom giant in the Rs 20,000 crore capital gains tax dispute, Finance Minister P Chidambaram said on Thursday.

“I have already proposed to Cabinet that since they (Vodafone) have issued a fresh arbitration notice, the original offer of a non-binding conciliation should be taken as withdrawn. That offer is no longer there,” he told reporters here. He added that the government will defend its case during the arbitration.

In its notice, Vodafone said it will go ahead with international arbitration, preferably in London, to resolve the long-pending tax dispute concerning its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar.

Vodafone gave the government two months to reply to the notice served under the bilateral investment treaty between India and the Netherlands.

Following this, the Finance Ministry put up a proposal before the Cabinet to withdraw the conciliation offer it made to Vodafone last year.

In February, the Cabinet had put on hold a similar proposal, pending settlement of Vodafone’s transfer pricing case at the Income Tax Appellate Tribunal (ITAT).

The ministry sought to withdraw the conciliation talks after Vodafone demanded the transfer pricing row be clubbed with the capital gains tax case.

Vodafone said in its notice that it wanted to move ahead with the arbitration without waiting for the ITAT decision on the Rs 3,700 crore transfer pricing case.

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 2007 acquisition.

While the basic tax demand is Rs 7,990 crore, the total outstanding is Rs 20,000 crore after including penalty.

The Supreme Court had ruled in Vodafone’s favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.

The government changed the rules later in 2012 to enable it to claim tax retrospectively on concluded deals.

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