Vodafone case: Govt may have to pay Rs 85 crore if no more legal steps

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The Indian government may have to pay a total of Rs 85 crore, in case it decides not to take any further legal recourse in the Vodafone arbitration matter of over Rs 20,000 crore retrospective taxation, sources said. Vodafone has won the case against India at the Permanent Court of Arbitration (PCA) in The Hague over the retrospective tax demand, with the court holding that the conduct of India's tax department is in breach of "fair and equitable" treatment. Finance Ministry sources said that the court has asked the Indian government to pay only 4.3 million pounds, or about Rs 40 crore, which is 60 per cent of the tribunal's administrative cost while the rest 40 per cent would be borne by Vodafone. Also, the government may have to refund the tax collected, which is about Rs 45 crore, only if it does not go for appeal against the award.

Therefore, the total outgo would be around Rs 85 crore only. The Finance Ministry, in a statement, said that the government will take a decision on further course of action, including legal remedies, among other options after studying the award and consulting with its counsel on the matter. The ministry said it "has just been informed that the award in the arbitration case invoked by Vodafone International Holding BV against Government of India has been passed. The Government will be studying the award and all its aspects carefully in consultation with our counsel".

"After such consultations, the Government will consider all options and take a decision on further course of action, including legal remedies before appropriate fora," said the official statement. Vodafone had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties' arbitrators in finalising a judge for a tax dispute. Following this, a tribunal was constituted in June 2016 after Vodafone challenged India's use of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone's $11 billion acquisition of 67 per cent stake in Hutchison Whampoa in 2007.

The retrospective tax law had been enacted after a Supreme Court judgement went in Vodafone's favour.

Vodafone had challenged the tax department's demand of Rs 7,990 crore as capital gains tax (Rs 22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT). In 2007, the Income Tax Department had slapped a demand notice seeking capital gains tax.

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