Law ministry

The Ministry of Justice in favor of contesting the verdict of the Pca court

The government is likely to challenge the arbitration award announced by the Permanent Court of Arbitration (PCA) in The Hague, in the Vodafone tax dispute. Sources told CNBC-TV18 that the Law Department is in favor of the Indian government challenging the Rs 20,000 crore tax dispute in Singapore’s High Court.

“The Legal Secretary informed the Ministry of Finance that Solicitor General Tushar Mehta is in favor of challenging the arbitral award. Therefore, the Ministry of Justice has asked the Union of India to challenge the award and initiate an action. procedure to protect interests, “sources told CNBC. -TV18.

However, the Ministry of Finance has yet to make a decision on the matter, as North Block referred the matter to an inter-ministerial group (IMG), which includes stakeholders from the Ministry of Finance, Central Council of Direct Taxes, of the Department of Economic Affairs, Ministry of Foreign Affairs, Ministry of Law, etc.

Prime Minister Narendra Modi discussed the matter at a meeting recently, but no decision has been made, sources said. The IMG will likely meet again and discuss the issue based on PM Modi’s contributions.

“The IMG is expected to meet soon to make a final decision as Prime Minister Modi considers the matter,” sources said. The Center has until December to file a response in Vodafone’s retrospective tax litigation case.

The Center needs to take a calibrated approach on the matter given that no future action could send a negative or positive signal to investors, while another view is that the government should reaffirm India’s right to tax .

The government is reportedly weighing its options as any ruling could impact 15 other tax disputes, including the arbitration initiated against the levying of the Rs 10,247 crore retrospective tax on UK-based Cairn Energy Plc. An international arbitral tribunal is expected to render judgment on the matter in the coming days.

The Vodafone tax case concerns a dispute in 2012 when the late Finance Minister Pranab Mukherjee changed income tax rules. This was reportedly done to overturn a Supreme Court ruling in favor of Vodafone. Under the amended rules, Vodafone was required to pay Rs 20,000 crore in retrospective taxes, including penalties. The Center then said the tax was due to Vodafone failing to withhold capital gains tax after the $ 11.2 billion deal between Vodafone and Hutchison Essar in 2007.

In September 2020, the Indian government lost the tax arbitration case against Vodafone in the Permanent Court of Arbitration in The Hague. The court ruled that claiming 22,100 crore rupees from Vodafone using retrospective legislation violated the “guarantee of fair and equitable treatment” guaranteed by the bilateral investment protection pact between India and the Netherlands.

(Edited by : Bivekananda Biswas)

First publication: STI