FinMin rejects Vodafone rejoinder

The finance ministry has turned down Vodafone’s rejoinder seeking an undertaking that retrospective amendments in the law would not apply to the company’s Rs 12,000-crore tax case. The ministry would now send a reply to the telecom major after securing the approval of Prime Minister Manmohan Singh.

“We did not agree with Vodafone....The inter-ministerial group (IMG) on Vodafone has prepared a reply to its rejoinder. The reply would first be sent to the Prime Minister’s Office (PMO). After the PMO’s approval, it would be sent to Vodafone,” an official said after the IMG meeting on Monday.

After Section 9 of the Income Tax Act was amended in the Budget to tax indirect transfers of Indian assets, Vodafone had sent a notice to the government under the bilateral investment promotion and protection agreement between India and the Netherlands. It asked the government to abandon or amend the retrospective amendments, or face arbitration proceedings.

In its reply to the notice, the finance ministry said the move by the company was premature. It added the government had already refunded Rs 2,500 crore to Vodafone, according to a Supreme Court order. To this, Vodafone sent a rejoinder, seeking an undertaking that the amendment would not apply to it.

Singh, who now holds charge of the finance portfolio, as Pranab Mukherjee stepped down as finance minister last month to contest the Presidential polls, may now have to decide on the government’s course of action in the Vodafone issue. He had recently said there would be no arbitrariness in tax issues.

The tax department is adopting a ‘wait-and-watch’ approach over sending a tax notice to Vodafone on its deal with Hutchison in 2007. After the Supreme Court quashed the department’s demand earlier this year, the government refunded the tax of Rs 2,500 crore, along with the interest, Vodafone had deposited earlier. While issuing the refund on March 18, the department told Vodafone the demand might be revalidated after the Finance Bill was passed.

Meanwhile, in its meeting on Monday, a panel on modifying the General Anti-Avoidance Rules (GAAR) decided to modify the draft guidelines by reducing the number of illustrative examples. The next meeting of the panel, which comprises officials of the finance ministry and representatives of foreign institutional investors and other stakeholders, would be held on August 12 and 13.

“The GAAR committee met on Monday and discussed the examples....Some examples would be reduced, some would be combined,” said an official.