The government will definitely be weighing all its options before deciding whether or not to contest the Vodafone arbitration award, but it is open to contesting.
"It won't be proper to say anything right now as we are still studying the judgement. But we are keeping all options open right now," a senior government official said.
British telecom major Vodafone won the case against India over a retrospective tax demand. The Permanent Court of Arbitration (PCA) at The Hague ruled that the conduct of India's tax department is in breach of "fair and equitable" treatment.
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.
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 telco 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).
"Since the Supreme Court had earlier already given a judgement favouring Vodafone, legal options within India is now exhausted," Sandeep Jhunjhunwala, partner at Nangia Andersen LLP, a tax consultancy firm, said.
The BIT covers any disputes relating to investment, including taxations matters and the government in the past has challenged the global awards.
"The Indian Government has the option of invoking legal remedies before appropriate fora, including moving to the High Court of Singapore, pleading it to set aside the arbitral award pronounced by the Permanent Court of Arbitration at the Hague, given that the seat of arbitration as per India-Netherlands BIT is Singapore," Jhunjhunwala said.
Given the fast moving wheel of foreign direct investment influx into India, there is a need to constantly showcase India as a business friendly destination to global investors and the move by the government would be an important signal in that direction, he added.
"Our commitment has always been to ease of doing business in India and the government would remain committed to it. But what must also be understood is that the laws and claims made by a sovereign is debated and passed by its highest institutions. That sanctity is also valid," the government official quoted above said.