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The government Tuesday suffered a setback as the Supreme Court dismissed its plea for a review in the Rs.11,218 crore ($2.2 billion) tax dispute case against telecom giant Vodafone.

The rejection of the review petition meant that the government will have to return the Rs.2,500 crore Vodafone had deposited. “We look forward to the return of our deposit immediately,” Vodafone said in a statement.

The deadline for the refund expired Monday.

The apex court bench of Chief Justice S.H. Kapadia, Justice K.S. Radhakrishnan and Justice Swatanter Kumar dismissed the plea of the government after considering it in their chamber.

“We have carefully gone through the review petition filed by the Union of India on 17th February, 2012. We find no merit in the review petition. The review petition is, accordingly, dismissed”, said Tuesday’s order.

Vodafone reacted saying the Supreme Court’s “clear and unambiguous ruling, based on the existing laws of India, re-iterates that the Indian tax authority does not have the jurisdiction to tax the transaction.”

Indian authorities had filed a review petition Friday in the Supreme Court on its verdict in January.

The case involved a levy on a 2007 transaction in which Vodafone Plc had paid $11.2 billion to Hong Kong-based Hutchison for acquiring a 67-percent stake in Indian telecom services major Hutch Essar.

The Supreme Court had ruled in favour of Vodafone saying that Indian tax officials did not have jurisdiction over a deal between two global companies even if assets involved in that deal were located in India.

A apex court in its Jan 20 judgment had set aside an earlier Bombay high court order that had upheld the tax demand by income tax authorities on account of the said acquisition.

The Finance Ministry in its review petition had said that apex court had erred the January 20 judgment for saying that the transaction between Vodafone Plc and Hong Kong-based Hutchison was a bonafide FDI investment in the country.

The review petition had contended that in the said transaction there was no inflow of the foreign investment in the country.

Vodafone had appealed against the 2008 high court verdict, arguing that India could not impose taxes because the transaction was made between non-Indian companies outside the country.

The deal was between Vodafone International Holdings BV, a Dutch subsidiary of the British firm and CGP Investments, a Cayman Islands company which held the Indian telecom assets of Hutchison.

Significantly, Tuesday’s ruling by the Supreme Court came just four days after the Finance Minister Pranab Mukherjee proposed in the federal budget retrospective amendments to the 1962 Income Tax Act, which empower the taxman to examine offshore merger and acquisition deals.

The retrospective amendment has been moved in the Finance Bill. If it is passed the way it is, it could impact the Vodafone case.



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