Vodafone, Cairn Energy retro tax case: Not being able to scrap the 2012 retrospective tax amendment is one of the major failures of the NDA government. The option to pay tax minus the interest and penalty is no solution — it can only be accepted under pressure.
Finance Minister Arun Jaitley has just sugar coated the government’s intentions by saying that it will not ‘coerce’ companies like Vodafone Group and Cairn Energy to avail of the one-time offer proposed in the Budget to settle their retrospective tax cases.
The very fact that he is telling the companies to either accept the ‘offer of paying the principal tax amount and get waiver of interest and penalty, or continue litigation’, makes it clear that the government wants them to pay the tax due, as it is not ready to take up tax issues under the bilateral investment promotion and protection agreements with the countries of their residence.
In effect, FM Jaitley’s statement during an interaction with journalists at the PTI office on Sunday that, “This is an alternate route (Budget one-time offer) which I have suggested. The option is theirs (Vodafone and Cairn). Nobody is being coerced to accept one route or the other,” hardly means anything.
The issue is very simple. The government (income tax department) lost the Vodafone tax case related to its $11-billion acquisition of 67% stake in the Indian mobile- phone business owned by Hutchison Whampoa in 2007 in the Supreme Court (SC) despite being on a strong footing.
The controversial 2012 retrospective amendment was brought to overturn the SC judgement — it has been felt across the board this was an error in the then UPA government’s part as a better idea would have been to take the SC judgement as a lesson and move ahead.
The continuation of the Vodafone case under the retrospective amendment and also initiation of the Cairn case, which relates to a business re-organisation, therefore, are standing on weak footings.
So, instead of trying to enforce a middle-path like the one suggested in this year’s Budget, the NDA government would have done well by scrapping the retrospective amendment.
In taxation, either a case holds or it doesn’t — there is no point trying to find a way out by force once the country’s highest Court has decided on the issue — yes, the law has been changed now — but, it doesn’t conform to prudence.
Even if the government succeeds in forcing Vodafone and Cairn to pay tax under the one-time settlement offer, it will only earn a bad name to the country’s taxation system.
While the UK oil explorer Cairn Energy has been slapped a tax demand of Rs 10,247 crore on its 2006 business reorganisation in its India unit and the total tax due is standing at Rs 29,000 crore with interest; Vodafone is facing a total tax demand of Rs 14,300 crore (including interest and penalty), of which, basic demand is that of Rs 7,990 crore.
The one-time settlement scheme is slated to open on June 1 and the companies availing of it will have to provide a proof of withdrawal of all legal proceedings, including arbitration, which is highly unlikely.