The Permanent Court of Arbitration at Hague has ruled that the conduct of India's tax department is in breach of "fair and equitable" treatment.
Following the arbitration award in the Vodafone retrospective tax dispute case, the Finance Ministry has said it will decide on a further course of action after considering all options. It added that it had just been informed that the award in the arbitration case invoked by Vodafone against the Government of India has been passed.
"The Government will be studying the award and all its aspects carefully in consultation with our counsels. After such consultations, the Government will consider all options and take a decision on further course of action including legal remedies before appropriate fora," the ministry said in a statement.
Sources said that on a quick look on the award in the arbitration case invoked by Vodafone, it is clear that no damages have been awarded against government.
"There is wrong impression that government will have to return Rs 20,000 crore because of this award. The Government of India has been asked to pay only 4.3 million pounds, i.e., about Rs. 40 crore which is 60 percent of the tribunal's administrative cost while the rest 40 percent of the cost would be borne by the Vodafone," sources said.
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, sources said.
British telecom major Vodafone won the case against India over a retrospective tax demand. The Permanent Court of Arbitration at Hague has ruled that the conduct of India's tax department is in breach of "fair and equitable" treatment.
Observing that the retrospective taxation despite the Supreme Court's judgment in favor of Vodafone was in breach of the Netherlands-India Bilateral Investment Treaty (BIT), the court has directed India to reimburse a sum of Rs 40.3 crore (GBP 4.3 Million) to Vodafone.
The telco 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 the tax dispute.
Following this, a tribunal headed by Sir Franklin Berman 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 a 67 percent stake in the mobile phone business owned by Hutchison Whampoa in 2007. This tax law had been enacted by India with retrospective effect, thereby sidestepping a Supreme Court judgement that went in the company's favour.The company challenged India's demand of Rs 7,990 crore in capital gains taxes (Rs 22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT).