In what seems like a conflicting stand, the government has reportedly challenged the international tribunal's September verdict that ruled in favour of Vodafone Group Plc in the Rs 22,100-crore tax dispute case. The government has filed the appeal in a Singapore court just before the 90-day deadline to do so.
Even though the appeal was reportedly filed on December 21, the government had, on Wednesday, lost out another high-profile Cairn Energy case in the international arbitration where the three-member tribunal ruled against Indian government's claim of Rs 10,247 crore over a 2006/07 internal re-organisation of Cairn's India business.
The challenge seems to go against the stand of Modi government, especially since in 2018, the former finance minister Arun Jaitley had said the retrospective tax demand raised against Vodafone Plc was "erroneous", and something that the ruling NDA government would loath to repeat.
Legal experts say that India's appeal against the Vodafone arbitral award was on the expected lines after the adverse decision in the Cairn Energy case. It's also believed that India will likely challenge the international tribunal's ruling in the Cairn's case. "The 2012 amendments were introduced to effect retrospective application of tax legislations, and the appeal contravenes India's promise to honour awards implicating from such laws," says Sonam Chandwani, managing partner at KS Legal & Associates.
The Vodafone Plc dispute dates back to 2009 when the tax department, under the UPA regime, imposed capital gains tax on the telecom major because the government believed that Vodafone was liable to pay taxes on the 2007 deal between Hutchison Essar and Vodafone in which the latter acquired 67 per cent stake in the former's telecom business in India.
The matter moved to the Bombay High Court which gave approval to the government's stand. Later, the Supreme Court quashed the Bombay High Court ruling, and the government changed the law retrospectively to held Vodafone liable. The change in law also affected other companies, including Nissan and Cairn Energy, all of which challenged the government's move in international arbitration courts.
The UPA government was against the arbitration process in the Vodafone case since it argued that the laws passed by the Parliament do not fall within the ambit of any international treaty, and such arbitration proceedings would be an abuse of the process of law. The apex court gave permission to Vodafone to go for international arbitration where the arbitration court held that the tax demand was indeed in violation of investment treaty agreement between India and the Netherlands.
By keeping the dispute alive, experts think that the Modi government seems to be hurting its "investor-friendly" image. "Despite the recovery of FDI flows post the 2012 amendment, it is high time for India to relook into the legislative prospects which hurt investors and tax community, globally, and alterations in the law to make it a lucrative investment destination," says Chandwani of KS Legal & Associates.