Vodafone conciliation gets Cabinet's green signal

CPSEs allowed to initiate wage negotiations for their staff; real estate Bill also approved

The Union Cabinet on Tuesday approved a proposal for conciliation with British telecom major Vodafone on their Rs 14,000-crore tax dispute. It also cleared the Real Estate (Regulation and Development) Draft Bill, aimed at organising and monitoring the sector, and allowed central public sector enterprises (CPSEs) to initiate wage negotiations for their employees. However, the food security Bill, also on the agenda, could not be cleared.

“We accept Vodafone’s offer to enter into a non-binding conciliation. The outcome of the conciliation will be brought back to the Cabinet. If both sides agree on the outcome, it will be taken to Parliament,” Finance Minister P Chidambaram told a press conference after a meeting of the Cabinet on Tuesday. He said it was in India’s interest to resolve the dispute and the government was not doing it in an arbitrary manner.

Officials said conciliation would pave the way for amendments to the

I-T Act. This would be needed for a uniform law for all companies facing similar tax demands from the government.

In 2007, Hutchison had sold its stake in Hutchison Essar to Vodafone. The tax department had sent a notice to Vodafone for failing to withhold tax while making payment to Hutchison. In January last year, the Supreme Court had ruled Vodafone was not liable to pay tax according to the prevalent law. (DISPUTE DIARY)

The government then brought retrospective amendments in the I-T Act in 2012 to tackle Vodafone-like cases, following which the income-tax department sent a notice to the telco, asking it to pay Rs 14,000 crore, including an interest of Rs 6,000 crore. There is a provision of imposing a penalty of 100 per cent of the tax demand, which will be Rs 7,900 crore in this case.

Kapil Sibal, after taking charge as the law minister recently, overturned his predecessor Ashwani Kumar’s decision that conciliation with the British firm was not possible under the current law.

The Real Estate (Regulation and Development) Draft Bill, which was also cleared on Tuesday, is expected to protect buyers from erring developers and usher in an era of transparency through a regulatory process, once passed by Parliament.

The draft Bill, in the works for about five years, makes it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities.

Besides, it has certain tough provisions to deter builders from putting out misleading advertisements related to the projects carrying photographs of the actual sites. Failure to do so for the first time would attract a penalty of up to 10 per cent of the project cost; a repeat offence could land the developer in jail for up to three years.

The Bill also aims to make it mandatory for developers to maintain separate bank accounts for every project to ensure the money raised for a particular task was not diverted elsewhere. It would provide for a clear definition of the ‘carpet area’ and would prohibit private developers from selling houses or flats on the basis of ambiguous ‘super area’. Currently, the sector is not regulated.

The Cabinet also approved a proposal for installation of mobile towers at 2,199 locations in nine Naxal-hit states — Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Maharashtra, Madhya Pradesh, Odisha, Uttar Pradesh and West Bengal. The project, to be executed by BSNL, would be funded by the Universal Service Obligation fund to the tune of Rs 3,046.12 crore.

The Cabinet also gave its nod to the management of central public Sector enterprises (CPSEs) to initiate wage negotiations for their employees. The move would benefit employees of those CPSEs that opted for five years of wage settlement from January 1, 2007. They could now go for another wage negotiation for five years with effect from January 1, 2012.
OTHER DECISIONS

• Setting up a regulator for the real estate sector
• Proposal for installation of mobile towers at 2,199 locations in nine Naxal-hit states
• Wage negotiations by the management of CPSEs for their employees

LEGAL TAKEAWAYS FROM VODAFONE ISSUE

• Govt and Vodafone can try for amicable settlement the six-year-old dispute
• Conciliation to be carried out under Indian Arbitration and Conciliation Act
• Qualified conciliators to be appointed by both govt and Vodafone
• Conciliators will suggest options and won’t take a final decision
• Conciliation will not be binding on the parties
• Once consensus is reached both sides will sign the final terms of settlement
• Once accepted, this may need amendment in Income-tax Act by Parliament
• A reprieve by way of interest and penalty waiver may be provided under law