Vodafone wins 20k cr arbitration case on retrospective tax against India; gov to pay 40 cr

In a setback to the Indian government, British telecom giant Vodafone on Friday, won a retrospective tax demand case against India at the International Court of Justice, as per reports. The Permanent Court of Arbitration at Hague ruled that India was in breach of "fair and equitable" treatment of the telecom major. The Court has directed India to reimburse a sum of Rs 40.3 crore to Vodafone, in the tax demand case of Rs. 20,000 crore.

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Vodafone moves ICJ against India

In 2013, the UPA-2 government had issued a tax demand of Rs 14,200 crore (including principal plus interest) to Vodafone, using a 2012 tax law, retrospectively taxing a 2007 deal between Vodafone and Hutchison Whampoa in 2007 worth $11 billion. Vodafone had challenged the notice under the Netherlands-India Bilateral Investment Treaty (BIT) in 2014, but could not resolve the dispute with the Centre. Two years later, in 2016, the Modi government issued a tax notice demanding a payment of Rs 22,000 crores (including interest since the original notice), warning of asset confiscation if not paid. Vodafone then moved the International Court of Justice (ICJ) in 2016 after failing to reach a consensus with the Centre.

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What started the India-Vodafone tussle?

In 2007, the UPA-1 government had pulled up Vodafone alleging that it failed to deduct withholding tax in the Hutchison deal. Vodafone had acquired 65% of the mobile phone company Hutchinson, for which the Centre demanded a capital gains tax payment of Rs 7990 crores. When the telecom firm moved the Supreme Court in 2012, the apex court had moved in favour of the telco stating that the 'transaction in 2007 was not taxable in India as per the Income Tax Act 1961'.

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Vodafone's AGR woes

Currently, Vodafone India which has merged with Idea (VI) owes Rs 58,254 crores to the DoT towards Adjusted Gross Revenue (AGR) dues, honouring the 2019 Supreme Court verdict. It has paid around Rs 7854 crores in four tranches to the DoT. In October 2019, the Supreme Court ruled in favour of the Centre allowing the DoT to recover Rs 92,641 crore in total adjusted gross revenue (AGR) from telecom operators in India. Furthermore, in September 2020, the apex court granted 10-year time to telecom firms like Vodafone Idea, Bharti Airtel and Tata Teleservices for paying the AGR dues to the DoT - with 10% AGR dues by March 31, 2021.