Finance Ministry to reply to Vodafone notice

The Finance Ministry is going to reply to the Vodafone notice on the retrospective tax proposal after the passage of the Finance Bill in Parliament as the matter is related to it. Sources said the reply is likely to quote China and UK retrospective amendments in support of the Indian proposal.

Sources added that the government could negotiate and was prepared for international arbitration, but was not thinking of withdrawing the retrospective amendments announced by Finance Minister Pranab Mukherjee in the Union Budget 2012-13.

In a notice on Tuesday Vodafone threatened to drag India to international arbitration if the telecom giant was made liable to pay Rs 11,000 crore in taxes over a 2007 acquisition.

The reply is likely to quote China and UK retrospective amendments in support of the Indian proposal.

Mukherjee had said that the government would examine the notice and pointed out that Vodafone was entitled to legal recourse.

The company served a notice of dispute to the Indian government invoking an investment treaty between India and the Netherlands in connection with tax liability.

A proposal contained in the Finance Bill aims to amend law to retrospectively tax cross-border transactions dating back to April 1, 1962. The move follows the Supreme Court ruling that Vodafone wasn't liable for taxes stemming from its 2007 acquisition of Hutchison's stake in Hutchison-Essar.

At a CII meet, Finance Secretary RS Gujral said the proposed retrospective amendment and introduction of General Anti Avoidance Rules (GAAR) are not to harass any company.

"Let me say at this stage, intention of the government is not to hassle anyone or to trouble anyone," he said while dismissing concerns among the industry that the move proposed in the Budget would impede foreign investments.

Gujral also assured the industry that their concerns "will be resolved".

Vodafone sent the notice to Prime Minister's Office, with copies marked to Mukherjee, Law Minister Salman Khurshid and Telecom Minister Kapil Sibal, claiming the proposed law violated the international legal protections granted to Vodafone and other international investors in India.

(With additional information from PTI)