The government cannot waive the multi-billion-dollar tax liabilities that Vodafone and Cairn Energy face, although it has done the most it could in offering to remove the interest and penalty if the principal is paid, Revenue Secretary Hasmukh Adhia said.
In an interview to PTI, Adhia said the government had earlier indicated the companies facing taxes owing to enactment of a law that retrospectively taxed their business, to waive interest and penalty up on payment of the principal amount as a means to settle the tax dispute out-of-court.
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The Budget for 2016-17 now makes the offer more formal and puts it on statute, he said. “The government has defined its limits. This is how far we can go.”
He added, “Earlier, it was only a signal that we were giving. Now it has come in the statute. The government has said that this is how far we can go... The government has shown that this is the best we can do and that’s why we are putting it in the statute.”
Explaining why the government could not completely waive the tax demands raised against the MNCs, he said retrospective amendment to the Income Tax Act was brought in by the previous government and the current government cannot undo it completely.
“Retrospective law was not done by this government, it was done by the previous government. Now for this government to waive the entire thing looks little odd. So this is why the government has said that this is how far we can go,” Adhia remarked.
UK oil explorer Cairn Energy is facing a tax demand of Rs 10,247 crore on a 2006 business reorganisation it carried out in its India unit before getting it listed. The company says it has paid all the due taxes and there was no unpaid liability. It invoked the India-UK Bilateral Trade and Promotion Agreements to take the government to arbitration over the issue.
British telecom giant Vodafone is also facing tax liability over its Rs 11-billion acquisition of 67 per cent stake in the mobile business owned by Hutchison Whampoa in 2007.
While the UK telecom group says it does not owe any tax as the transaction was conducted offshore, the income tax department is seeking taxes on the deal because it involved assets in this country. Arbitration has been initiated on this issue as well.
To a query, what if the companies, which have been contesting the tax demands, end up not accepting the offer to pay the principal amount, Adhia replied, “It is for them to take it or not. But the government’s sovereign right to recover will remain”.
“In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of dispute resolution for them,” Jaitley had said while presenting Budget for 2016-17.