Govt-Vodafone tax conciliation process breaks down: Sources

In a massive blow for Vodafone, the government has decided to withdraw an eight-month old tax conciliation process and move ahead to recover almost Rs 20,000 crore from the telecom giant. This includes the principal amount, penalties and interest accrued, reports CNBC-TV18.

Also read: DRP favours I-T dept in Rs 1300 cr Vodafone caseThe Finance Ministry on February 3 floated a cabinet note to withdraw the conciliation process. In June last year, the cabinet had given the green signal to enter into a conciliation process to settle the dispute over a capital gains tax that dates back to Vodafone's acquisition of Hutchison Whampoa’s stake in Hutchison Essar in 2007.  The IT department had kept its tax notice to Vodafone in abeyance following the Cabinet decision to resolve the tax dispute through conciliation talks. Also Read: See tremendous growth in EMs like India, says Vodafone

Reasons for breakdown: Sources say, Vodafone was keen to increase the scope of the conciliatory process to include an ongoing Rs 3,700 crore transfer-pricing dispute, a demand that the Finance Ministry found to be unacceptable.  What's more, Vodafone wanted to hold the conciliation under the international laws as prescribed by the United Nations Commission on International Trade Law Rules of Conciliation, or what is popularly refered to as UNICTRAL. But the finance ministry wanted to enter into conciliation only under the Indian Arbitration and Conciliation Act. This was another bone of conetention that the governemt and Vodafone failed to resolve, despite the Cabinet in June 2013 deciding a truce was possible only as per the Indian Act. This has led to the finance ministry concluding the conciliation process cannot take place as approved by Cabinet in 2013.  The Supreme Court in a landmark judgement in January 2012 had ruled in Vodafone’s favour, concluding the telco was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison. The then Finance Minister Pranab Mukherjee then went on to amend the Income Tax Act, thus enabling the government to make retrospective tax claims on concluded deals.

 With Rs 20,000 crore at stake, Vodafone's next course of action is keenly awaited.