SC to hear Centre plea on Vedanta merger

By: | Published: January 20, 2015 3:58 AM

Apex court posts the matter for final hearing on April 28

The Supreme Court on Monday decided to hear the two petitions filed by the Centre and the income tax department challenging the merger of Vedanta group companies — iron ore mining unit Sesa Goa and copper producer Sterlite Industries — on grounds that the amalgamation was aimed at avoiding taxes.

While seeking setting aside of the merger scheme, the ministry of corporate affairs (MCA) said that such scheme is not in the public interest and has been devised in a manner to evade taxes which would result in substantial loss of public revenue.

Scheme of Amalgamation is nothing but a colourable device adopted by Sesa Goa, the once-flagship iron ore producer of Anil Agarwal-controlled Vedanta Resources, to evade payment of tax and the sanction of scheme will result in refund of R1,500 crore tax paid earlier by the firm, additional solicitor general PS Patwalia argued before the bench headed by Justice AR Dave, which posted the matter for final hearing on April 28. The apex court also asked the parties to file short submissions.

Asking the court to hear the income tax department in detail, solicitor general Ranjit Kumar argued that “its not tax planning but evasion of tax and the SC should look into the matter as it involves huge public funds.”

“They (the companies) have filed revised tax returns and have claimed refund of R1,600 crore,” he said, adding that the apex court needs to settle three issues- what are the arrangements both under SICA and the Companies Act and what parameters should be laid to protect the interests of a civil litigant.

When the bench posed the question that the government was heard on the issue by the HC and it “can’t now say that a particular department should get notice, the SG said that the corporate affairs ministry is different from the income tax department.

Senior counsel Harish Salve and Arvind Dattar, appearing for Sesa Goa, opposed the petitions, arguing that shares of the new companies are listed and are being traded for the last two years. “The amalgamation can’t be undone,” Salve said.

They further said that under 72A of Income Tax Act, if there is any merger or demerger, the company can take refund to set off the losses. They earlier told the apex court that it had already upheld the merger scheme on August 27 last year after dismissing an appeal filed by Shailesh S Bajaj against the merger.

The department has appealed against the Bombay HC’s order that dismissed its intervention application on grounds that it had no locus standi, and the Supreme Court said any objection would be entertained only if the MCA files a SLP.

Sesa Sterlite Ltd, India’s biggest aluminium maker, emerged from the combination of Sesa Goa and Sterlite Industries (India) Ltd in an all-share transaction. The Sesa Goa-Sterlite merger, which was announced in February 2012, had received all other regulatory clearances.

The Ministry of Corporate Affairs said that parent company Vedanta Aluminum Ltd had huge accumulated loss/unabsorbed depreciation of Rs 2,461 crore whereas Sesa Goa had paid total taxes of Rs 846.97 crore for financial year ending on March 31, 2012. Therefore the entire tax liability of Sesa Goa will be wiped out and the total taxes of Rs 846.97 crore will have to be refunded at the expense of public exchequer, it added.

The taxman’s contention is if the merger date is taken as the time the high court cleared the merger, the tax department will not have to refund the entity Rs 1,500 crore — but since the merger was done with retrospective effect, the amount will need to be refunded.

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