Government seeks review of Supreme Court’s Vodafone verdict

The Indian tax authorities Friday filed a review petition in the Supreme Court on its verdict in a Rs.11,218 crore ($2.2 billion) tax dispute favouring telecom service provider Vodafone.

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 last month 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 bench of Chief Justice S.H.Kapadia, Justice K.S. Radhakrishnan and Justice Swatanter Kumar in their judgment on Jan 20 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 said the Jan 20 judgment erred in saying that the transaction between Vodafone Plc and Hong Kong-based Hutchison was a bonafide FDI investment in the country. In the said transaction, there was no inflow of the foreign investment in the country, it said.

The petition said that by its very nature, the transaction was off-shore and described the apex court finding as patently and inherently flawed.

Holding as totally inconsequential that group contributed Rs.20,0000 crore as direct and indirect taxes, the review petition said that the taxes paid by the domestic users were totally unrelated to the core of the matter – the tax liability arising from the overseas transaction relating to Indian operations of Hutch Essar.

The petition sought the setting aside of Jan 20 judgment on the ground of non-consideration of the 15 contentions raised by it.

The review petition said that judgment has not appreciated the various clauses of the sale purchase agreement (SPA).

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.

In its review petition, the income tax department has asked the apex court to reconsider its judgment saying the tax act “has not been correctly interpreted”.

Vodafone, meanwhile, said the Supreme Court in its January verdict had clearly and unambiguously ruled out any tax obligation and that the review petition will be evaluated by the same bench that ruled in the case.

“Vodafone notes the filing of the tax authority’s review petition, which will be evaluated by the same bench that ruled on the Vodafone-Hutchison case, and has no further comment to make at this stage,” the company said in a statement.

Earlier this month a three-member committee set up by the finance ministry had suggested possible options before the Central Board of Direct Taxes (CBDT) following the Vodafone verdict.