SC rejects Rs 4,761 crore tax refund to Vodafone, telco to get only Rs 733 crore

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April 30, 2020 2:50 AM

Tax experts said that in case Vodafone Idea is dissatisfied with the final scrutiny it can challenge the order but it would have to go through all the regular channels by first appealing in the income tax tribunal and then upwards.

Wednesday's setback before the SC was the second such for the company as earlier its plea was rejected by the Delhi High Court also.Wednesday’s setback before the SC was the second such for the company as earlier its plea was rejected by the Delhi High Court also.

Vodafone Idea suffered a setback on Wednesday when the Supreme Court dismissed its plea for a tax refund of around Rs 4,761 crore pertaining to assessment years 2014-15 till 2017-18. However, the apex court granted it a partial relief by directing the income tax department to refund an amount of Rs 733 crore within four weeks. This amount pertains to the assessment year 2014-15.

The IT department has still not completed the scrutiny of the other assessment years and the court said that it is well within its right under section 241 A to complete it within the time period which is before it. The scrutiny of other assessment years is still not over and therefore the court directed the IT department to complete it within the stipulated time period.

Vodafone Idea, which is pressed with adjusted gross revenue dues of Rs 58,254 crore, of which it has been able to pay only Rs 6,854 crore so far, had wanted the refund of all the assessment years totalling Rs 4,761 crore to be made before the scrutiny is over. Its reasoning was that if in the scrutiny it was found that it owed more as taxes it would pay later. It was this plea which was dismissed by the court.

Wednesday’s setback before the SC was the second such for the company as earlier its plea was rejected by the Delhi High Court also.

Tax experts said that in case Vodafone Idea is dissatisfied with the final scrutiny it can challenge the order but it would have to go through all the regular channels by first appealing in the income tax tribunal and then upwards.

Terming the judgment as “significant” and the one which will “be talk of business circle for some time,” Rakesh Nangia, chairman, Nangia Andersen Consulting, said that the ruling “reinforces the principle that one cannot approach the Supreme Court/ High Court and seek relief against the procedures prescribed in the statute.

“Extraordinary remedy of writ has to be sought in extra-ordinary situation where the authorities have either violated the statutory provisions or exceeded their jurisdiction,” he said. He said that the tax authorities also relied on a provision in income tax law, which gives power to income tax authorities to withhold refund, pending scrutiny assessment proceedings. “The tax authorities also objected to issuance of refunds due to outstanding tax demands in case of taxpayer for earlier years,” Nangia said.

“The HC had clearly held that mere issuance of a notice under section 143(2) is not enough to withhold refunds claimed in the return of income – exercise of discretion by way of an intimation/order was required. The revenue was not in appeal on this aspect. Therefore, for the SC to hold that once notice is issued, refund need not be processed and that too when this was never argued, has come as a surprise. This will have large scale ramifications for every taxpayer,” Vodafone’s counsel Sachit Jolly told FE.

Vodafone Idea is facing extreme liquidity pressure. Apart from the burden of the payment of AGR dues where it has sought deferred payment spread over some 20 years, which is currently before another bench of the SC; the company had to recently pay its current licence fee and spectrum usage charge for the period of January-March, amounting to Rs 1,367 crore to the government.

This further strained its cash reserve position. The company had posted a net loss of Rs 6,453 crore during the October-December quarter on a revenue of Rs 11,089 crore. Its cash reserves of around Rs 12,815 crore at the end of December has now reduced to below Rs 3,000 crore.

In the light of strained finances, Vodafone Plc, the parent firm of Vodafone India, on April 22 infused a sum of $200 million (about Rs 1,530 crore) in Vodafone Idea, which was otherwise due in September 2020, under the terms of the ‘contingent liability mechanism’.

The CLM entered between Vodafone and Idea Cellular at the time of merger, had envisaged that Vodafone Group needed to pay for adjusted gross revenue dues if the amount paid exceeded that of Idea Cellular.

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