The government on Wednesday said the fresh tax notice on British telecom giant Vodafone was not a new one and does not reflect any change in official position.
“I can only inform you that in the past many decisions have been taken by the government in the favour of the company also. In what circumstances this has been issued, what are the nuiances, I think the revenue department will explain that,” telecom minister Ravi Shankar Prasad said.
The minister’s comments came after a day Vodafone confirmed that it has been asked afresh to pay `14,300 crore in tax dues or face seizure of its assets in India, triggering a fresh bout of anxiety among investors less than two weeks before the government presents the budget for 2016-17.
The revenue department has said the tax is due on Vodafone International Holdings BV’s $11- billion acquisition of Hutchison Whampoa’s India telecom business in 2007. Vodafone India has argued that no tax was due as the transaction was conducted offshore. But the tax department’s contention is that capital gains were made on assets in India.
Sources said the notice, served earlier this month, is a likely fallout of delays in “peace talks” or the arbitration process between the Indian government and Vodafone on the dispute.
“The discussion (on arbitration) has broken down leading authorities to renew the tax demand,” said a ministry official who did not want to be identified.”Though both India and Vodafone had locked horns in litigation abroad, the arbitration never really took off as the 3-judge quorum was never appointed,” he added.
After former chief justice RC Lahoti pulled out as India’s arbitrator in the case, Costa-Rica-based Rodrigo Oreamuno was named to represent the government. While Yves Fortier is the arbitrator for Vodafone, the third arbitrator has not been named, and in that sense the arbitration has not yet begun, finance ministry sources said.
This demand notice comes at a time when the Modi government has been working overtime to shed India’s growing perception that it was a difficult place to do business.
According to tax experts, the demand notice could have been “a harmless reminder of dues, instead of being a harsh one” that threatened to seize Vodafone India’s assets. “Nothing prevents the government from sending demand notices under the law, especially when there is no clarity on the arbitration,” said Vishal Malhotra, a taxation and telecom expert with consulting firm EY
Only last month, Prime Minister Narendra Modi had assured investors that retrospective tax was “a thing of the past”.
When asked for comments, Assocham president Sunil Kanoria said “discretionary powers of tax authorities have to be removed” as these lead to unwarranted disputes. He avoided any reference to Vodafone as an individual company matter.