Vodafone arbitration appeal deadline ends today, but govt still uncertain

FM's meeting with officials on arbitration appeal last week inconclusive

The government is still uncertain about the appeal against an arbitration award relating to retrospective tax demand against British telecom major Vodafone Plc even though the deadline for it ends on Wednesday.  

On September 24 this year, the Permanent Court of Arbitration at the Hague ruled that the Indian government seeking Rs 22,100 crore in taxes from telecom giant Vodafone — using retrospective legislation — was in “breach of the guarantee of fair and equitable treatment” under the bilateral investment protection pact between India and the Netherlands. 

Sources said Finance Minister Nirmala Sitharaman had, last week, discussed the matter extensively with senior bureaucrats, including secretary level officials and heads of concerned tax departments. “The implications of challenging or not challenging the arbitration were discussed in detail. The minister was also apprised on various aspects of the case. However, the meeting remained inconclusive,” said a source privy to the discussion. 

All arbitration orders have a time limit of 90 days for challenging them before a court in Singapore — which was a seat for arbitration. However, legal experts said that since the deadline is not sacrosanct in the arbitration matters, the government can file an appeal later with condonation.

Interestingly, views on an appeal are divided as some sections of people in the government are not in favour of it. This is keeping in mind the recent uptick in India and UK relations, which, according to them, would play a critical role in the final decision of the government. 

The development also assumes significance ahead of British Prime Minister Boris Johnson’s visit to India in January. His first bilateral visit is expected to strengthen trade and investment ties with India and this would further boost foreign inflows amid the pandemic. 

However, revenue officials have been pitching to challenge the award as they feel it is not covered under investment protection treaties with various countries and that law on taxation is a sovereign right of the country. 

Sources said since the arbitration award, the government has been exploring various options available to it. Other than challenging the award, the government also thought about the possibility of withdrawing the controversial 2012 amendments to the Income Tax Act. Another option is to not accept the award and get it quashed from the Supreme Court.

Email sent to the ministry of finance and Central Board of Direct Taxes remained unanswered. 

Vodafone had initiated arbitration proceedings under the India-UK and India-Netherlands bilateral treaties in connection with the tax demand raised against it in relation to its $11 billion deal to acquire the stake of Hutchison Telecom. 

The tax department felt the deal was designed to avoid capital gains tax in India and so imposed a tax demand, which was rejected by the Supreme Court in 2012. 

While proceedings under the India-Netherlands bilateral treaty were pending, the telecom major initiated a second arbitration under the India-UK bilateral treaty, as well, on January 24, 2017, and the Delhi High Court allowed it.

In the same case, the high court had, on November 17 this year, granted time to the Centre to respond on whether it would challenge the India-Netherlands bilateral treaty award. However, no statement has yet been made by the government on this.

Sitharaman, in an interview to Business Standard in October, had said the government was exploring all legal remedies and a final call would be taken after considering the options. “We’ve not taken a call on whether we want to challenge it. We are studying the verdict. Amending an Act and making it retrospective is something that Prime Minister Narendra Modi and the then finance minister (Arun Jaitley) have voiced against since 2014,” she had said.