Vodafone’s move to get the Indian government into international arbitration on a high-profile tax dispute could stumble upon the latter’s refusal to be party to such a process. According to officials, the government won’t appoint an arbitrator in response to the notice sent by the Dutch arm of the British telecom giant seeking international arbitration to resolve its tax dispute, now pegged at over R20,000 crore.
Legal experts say unless Indian government gives its consent, the arbitration would be “stillborn”.
The sources said the finance ministry will seek the Cabinet’s nod to go ahead with recovery of the tax demand arising from Vodafone’s acquisition of Hutch Essar seven years ago as attempts at conciliation talks had failed.
“We maintain our view that that taxation is not part of BIPA (bilateral investment and promotion agreement) with Netherlands. A response to Vodafone’s arbitration notice will be finalised by the Cabinet. The earlier Cabinet direction on the income tax department to put on hold recovery proceedings until conclusion of conciliation talks does exist now. We will seek a Cabinet’s direction on this as conciliation has failed to materialise,” said a finance ministry official.
A Cabinet meeting is now likely only after the new government is in place.
Vodafone had on April 17 issued a fresh notice to India for international arbitration to resolve the dispute, which made India call off the conciliation offer.
Finance ministry officials said that Vodafone was well aware of India's position that taxation is not covered by the India-Netherlands BIPA and that the question of appointing arbitrators does not arise.
"Finance minister P Chidambaram had given Vodafone a very long rope to resolve the dispute through the conciliation offer. Deferring the recovery of taxes (on the 2007 deal) from the date of the retrospective amendments to the Income Tax Act in 2012 itself is a major relief given to the company,” said another official, requesting anonymity.
Vodafone gave the government two months to reply to the notice served under BIPA. Chidambaram said on Thursday that the Indian government will “defend” the notice for arbitration from Vodafone. “I have already proposed to Cabinet that since they (Vodafone) have issued a fresh arbitration notice, the original offer of a non-binding conciliation should be taken as withdrawn. That offer is no longer there,” he said.
“Without the consent of the Indian government, arbitration would be stillborn,” said Diljeet Titus of law firm Titus & Co.
Arbitration expert Ranjana Roy, however, said that