Govt took rational route on Vodafone dispute: Experts

The government’s decision to opt for a non-binding attempt at conciliation and under Indian law in its tax dispute with telecom multinational Vodafone is understandable, note experts.

Vodafone suggested conciliation under international law and the legal provisions are similar; however, refusing to abide by the process if it didn’t like the outcome would have been embarrassing in that case. "They (Vodafone) wanted it to be binding. What the government has offered them is a non-binding conciliation process," said Sandeep Parekh, managing partner, Finsec Law Advisors.

“If the government wants to wriggle out, it can do it under the UN rules as well but it creates a bad image internationally and diplomatically," said Abhimanyu Bhandari, managing partner, Axon Partners.

Abhishek Dutta, partner, HSA Legal, said the Arbitration and Conciliation Act, 1996, freed the conciliator here from the formalities of the code of civil procedure and the Evidence Act. This means more leeway in the process.

The Act also makes the settlement agreement under the conciliation process at par with the award of an arbitration tribunal.

While Parekh finds low probability of the government and Vodafone reaching a settlement, Bhandari said it was high time India settled the tax row. Vodafone was treated "shabbily", he said, as even after a Supreme Court verdict saying our tax authorities did not have the jurisdiction to tax the multinational for the $11.1-billion deal with Hutchison, it had amended the law, with retrospective effect from 1962.

The Parthasarathi Shome committee had later recommended that a  retrospective change in tax laws was not preferable. And, even if there was to be taxation in such deals, it was the seller (Hutchison in this case) which should be taxed, not the buyer of shares (Vodafone).  

Dutta said the first priority for Vodafone was to have the tax liability removed. The second would be to avoid interest payment on the disputed tax. On the penalty, Vodafone had an upper hand, as no intention of evading the tax could be established in line with the then law.

The I-T department had sent a notice for payment of Rs 14,000 crore, including  interest of Rs 6,000 crore for Vodafone’s deal with Hutchison to acquire its assets in Hutch Essar (now Vodafone India). There is a provision of imposing a penalty of 100 per cent of the tax demand, or Rs 7,900 crore in this case.

All three agreed that the process of settlement would be long-drawn. The outcome of the conciliation process would be taken to the cabinet and then to Parliament to amend the I-T Act. Once then could the government sign it. All this could take more than a year, during which another government would be formed.