Once a settlement is reached, Parliament will need to ratify it
The decks have finally been cleared for a conciliation between the taxman and telecom major Vodafone over the disputed R1,200-crore tax demand ? R19,500 crore including penalties and interest payments ? arising out of its $11-billion purchase of Hutchison?s India operations in 2007. New law minister Kapil Sibal sent the finance ministry?s clarifications on this to attorney general GE Vahanvati, who has given his assent to the proposal.
Under the proposal, any conciliation the finance ministry arrives at with Vodafone will have to be cleared by the Cabinet. Once the Cabinet approves the conciliation, the proposal will have to be ratified by Parliament. ?This is not a simple tax demand,? Sibal said. Since it was brought about by an Act of Parliament ? the Finance Bill ? it has to be voted upon by Parliament.
While finance minister P Chidambaram had said that he was going to move a Cabinet note that would allow the government to enter into a conciliation with Vodafone many months ago, the matter had got stuck with the law minister Ashwani Kumar of the view that under the law, there was no provision for conciliation ? that is, Vodafone would have to pay the entire R19,500 crore being demanded by the taxman. Vahanvati had then favoured Kumar?s stand but now, after the clarification from the finance ministry, has revised his earlier opinion.
Vodafone, on the other hand, had been arguing that the highest court in the land had accepted its plea and struck down the tax demand. While the tax demand had been revived by the retrospective amendment to the law brought in by Pranab Mukherjee when he was finance minister, Vodafone sources had indicated the company was willing to enter into conciliation with the taxman.
Apart from the fact that Vodafone was keen not to have a running dispute with the government, another issue was the fact that Vodafone has several other disputes with the taxman on cases relating to its takeover of Hutch?s India operations as well as the hiving off of its tower business and merger with Indus Towers.
Vodafone?s desire for a settlement includes being able to arrive at some settlement on some of these pending cases as well. Vodafone also has a transfer pricing case relating to the takeover of Hutch?s India operations.
Several meetings were held between the law and finance ministries to resolve the differences in approach over the past few months, but no headway was made till Sibal took over after Kumar was asked to step down in the wake of the ?coalgate? scandal where he, along with others, made suggestions to change the CBI chargesheet.
Vodafone officials have also had several meetings with senior tax officials including revenue secretary Sumit Bose but matters have always got around the method by which a conciliation was to be arrived at.
With this last hurdle now cleared, talks between the two parties are expected to proceed quickly. The finance ministry?s hope is that, if talks are over within the next few months, by the time the monsoon session begins, the matter can be placed before Parliament in August.