"The Cabinet has decided to instruct the Income Tax Appellate Tribunal (ITAT) to expeditiously solve the Vodafone transfer pricing case. Once that is done, the Cabinet will review the conciliation process," a senior Finance Ministry official said after a meeting of the Union Cabinet today.
Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition of Hutchison Whampoa's stake in Hutchison Essar and the other is the transfer pricing case involving Vodafone India Services.
"The cabinet has decided not to take any hasty decision regarding review of conciliation talks with Vodafone," the official added.
The decision regarding the Vodafone conciliation offer may have to be taken by the next government as ITAT, which will hear the transfer pricing case from March 19, will take a few months to decide on the dispute.
The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar.
While the basic tax demand is Rs 7,990 crore, the outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.
Earlier this month, the Finance Ministry circulated a draft Cabinet note seeking to withdraw the conciliation talks after Vodafone demanded that the Rs 3,700 crore transfer pricing row be clubbed with the capital gains tax case.
It followed a notice under Bilateral Investment Promotion and Protection Agreement by Vodafone International Holdings BV to the government over the tax dispute. It said the amendment to the I-T Act will cause Vodafone International Holdings substantial financial loss.
Sources said Vodafone's notice demonstrates the company's reluctance for conciliation within the scope of the terms approved by the Cabinet in June.
The Finance Ministry has already prepared its rebuttal to the notice, saying the pact between India and the Netherlands does not cover taxation issues, sources said.
The Supreme Court had ruled in Vodafone's favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.
The government changed the rules later in 2012 to enable it to claim tax retrospectively on concluded deals.