Retro tax ghost returns to haunt Vodafone

I-T dept sends a notice saying it may seize the company's India assets

Just days after Prime Minister Narendra Modi said retrospective taxation was a closed chapter and promised a “transparent, stable and predictable” tax regime, the income tax department has done just the opposite.

In a notice to Vodafone, the tax department said it might seize the British firm’s assets in the country if it failed to pay Rs 14,200 crore in disputed tax. The tax arose out of retrospective amendments the previous United Progressive Alliance government resorted to after losing its battle with Vodafone in the Supreme Court. The case relates to the $11 billion (Rs 75,256 crore) acquisition of Hutchison Whampoa’s Indian telecom business by Vodafone in 2007. The matter is in international arbitration.

Vodafone Plc, the UK-based parent, reacted strongly and said, “In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors, this seems a complete disconnect between the government and the tax department.”

It further said, “We can confirm that we have received a tax reminder from the tax department that also references asset seizures in the event of non-payment” even though “the Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through existing judicial process”.

The revenue department tried to play down the development. Revenue secretary Hasmukh Adhia tweeted, “The notice in Vodafone case is a routine exercise of sending collection notice to all those whose dues are not stayed by any court."

He said the party can always approach assessing office with a request to stay the demand as per law.

"In case assessing officer does not agree, party can go to next higher authority and get a stay," his tweets further said.

Meanwhile, Surabhi Sinha, member, Central Board of Direct Taxes, told reporters on the sidelines of the Make in India Week,"The Department is strictly adhering to the regulations and the serving of notice (to Vodafone) was just normal (procedure). The assessing officials issue assessment orders and demand notices as part of the normal process."

She did not specifically name Vodafone.

According to Sinha, the government is keen to have a predictable and stable taxation regime as envisaged by the Prime Minister. However, she declined to comment further on the Vodafone matter.

The tax department has also extended the bar on UK's Cairn Energy selling its residual stake in Cairn India till March 31 as the Rs 10,247-crore tax dispute with the company continues.

The department had on January 22, 2014, issued a notice to Cairn Energy over alleged capital gains of Rs 10,274 it made in 2006, when it reorganised its India business and raised money through an initial public offering.

Finance Minister Arun Jaitley in his maiden Budget speech in 2014 had said retrospective amendments to the I-T Act had led to litigation. He had assured investors that his government would not change tax laws retrospectively, if it leads to fresh liability.
UNENDING TAX TALE
 Vodafone

• The case relates to Vodafone’s acquisition of assets in India from Hong Kong-based Hutchison
• The UPA government carried out retrospective amendments to the Income-Tax Act to bring all foreign indirect transfers under the tax net
• The basic tax demand for Vodafone was Rs 7,990 crore

Cairn

• In January 2014, Cairn was slapped with a Rs 10,247-crore assessment notice on alleged capital gains made on an internal reorganisation in 2006
• The company denied any tax was due even if retrospective amendments were applied
• Cairn Energy has been barred by the I-T Department from selling the 9.8 per cent stake in Cairn India that it holds