Govt answers Voda truce call

OUR SPECIAL CORRESPONDENT

New Delhi, June 4: The Union cabinet today agreed to pursue a process of conciliation with Vodafone to break the logjam over the Rs 11,217-crore tax dispute that had dragged on for over six years since the telecom giant struck a deal to acquire a 67 per cent stake in Hutchison Essar. Finance minister P. Chidambaram told reporters after the cabinet meeting that the government "will accept the offer by Vodafone for a non-binding conciliation. The outcome will be brought back before the cabinet for approval". The tax dispute arose after Vodafone and Hutchison conducted their $10.7 billion transaction offshore, with Vodafone's Dutch subsidiary — Vodafone International Holdings — acquiring CGP Ltd, a Cayman Islands company controlled by Hong Kong-based Hutchison. The government insisted that Vodafone should have deducted $2.2 billion from the payout to Hutchison and paid it to the government — a position that the Anglo-Dutch giant challenged. The Vodafone tax case turned into a cause céèbre after an acrimonious court wrangle and an audacious attempt by the government to undermine an adverse Supreme Court verdict through an amendment in tax laws that was dated back by 60 years. The retrospective amendment in the tax laws sparked outrage among foreign investors who turned coy about investing in India until the dust kicked up by the Vodafone case finally settled. But it wasn't clear if the conciliation process would proceed smoothly after the government said it wanted to conduct it under Indian laws rather than the international arbitration process that Vodafone wanted. Vodafone did not offer any comment immediately. Chidambaram, however, did not say if the tax demand would be stayed during the pendancy of the conciliation. "The tax demand has already been made so whatever the status of tax demand today will continue. Cabinet has approved that conciliator can be appointed. We will go with the names to Prime Minister," he said. The government has held negotiations with the top executives of Vodafone to hammer out a deal. Earlier this year, Vodafone indicated that it was open to the idea of a negotiated settlement. "This is a celebrated case … it is in India's interests to resolve this case," the finance minister said. Lobbies representing global firms and the British government have been pressing the Indian government to settle the case for some time. Officials said now the two sides would have to agree to a judge or a panel of judges who would moderate a settlement between the two sides. "If both sides agree, then the matter may be brought before Parliament for an amendment to the income tax act," Chidambaram said. Current rules allow the government to waive penal interest but not simple interest due on the original tax demand of Rs 7,900 crore in Vodafone's case. Depending on the negotiations and arbitration, the income tax may have to be amended. The big beef is over penal interest arising from the application of section 201 of the income tax act which declares a tax defaulter as an "assessee in default" — inviting a hefty penal tax that could swell to three times the original demand. Officials said this retrospective amendment did not provide for any waiver of penal interest and the government would have to go to parliament to waive it. However, legal eagles argue that there is a lot of legal precedent established through court orders issued by several courts, including the Supreme Court under which penal interest in tax cases can be waived. http://www.telegraphindia.com/1130605/jsp/business/story_16972951.jsp#.Ua9EQNKBlA0