The government will soon challenge an international arbitration ruling in favour of the Vodafone Group that quashed the income tax department's retrospective tax demand of Rs 22,100 crore.
The Centre has reportedly decided to act on Solicitor General (SG) Tushar Mehta's opinion to contest the arbitration judgement which overturned the income tax department's tax demand on the ground that India was in violation of the bilateral investment treaty it inked with the Netherlands by amending the law with retrospective effect.The top government lawyer has supposedly advised that the decision of an arbitration tribunal cannot contradict the law passed by a sovereign parliament.
"The question of law - the power of an arbitral tribunal to virtually and substantially declare a parliamentary legislation of a competent Parliament of a sovereign nation to be non est and unenforceable - itself is an issue which needs to be challenged. I therefore, opine that the Union of India must challenge the said award and must file all available proceedings to challenge the award and/or to protect the interest of Union of India," Mehta said in his opinion, the Economic Times reported.
The SG suggested that India should find a competent forum in Singapore while advising against approaching the Delhi High Court or the Supreme Court since the "seat of arbitration is Singapore and prima facie the challenge may lie in the said arbitration before the municipal court of Singapore."
The government had lost a high-profile international tax arbitration case against Vodafone in September. An international arbitration court ruled the government, seeking Rs 22,100 crore in taxes from telecom giant Vodafone using retrospective legislation, was in "breach of the guarantee of fair and equitable treatment" guaranteed under the bilateral investment protection pact between India and the Netherlands.
The telecom giant moved to the International Court of Justice (ICJ) in 2016 following no consensus between its and the government's arbitrators in finalising a judge for resolving the tax dispute.
Vodafone had, in 2013, invoked an India-Netherlands bilateral investment treaty, seeking a resolution to the tax demand imposed on it by enacting a tax law with retrospective effect to sidestep an SC judgement that went in the company's favour.
Vodafone argued that India does not have jurisdiction over the matter on account of its investment pact with the United Kingdom. On the other hand, Centre retaliated that it was an "abuse of the process of law" as the cause of action of the second arbitration was the same as the first one and is against the same host state.