The cabinet Tuesday gave the go-ahead for the conciliation process with the Vodafone Group, Finance Minister P. Chidambaram said.
"There was a proposal from the finance ministry. The cabinet today (Tuesday) approved a proposal of the finance ministry for non-binding conciliation on the issue," he said after the cabinet meeting.
British telecom major Vodafone is facing a Rs.11,217-crore tax liability in India. Earlier this year, the law ministry had rejected the finance ministry's proposal for conciliation with Vodafone and said it was illegal.
"The names of the conciliators from the government side will be given to the prime minister, who will approve it," Chidambaram he added.
Both sides will sit down and discuss non-binding conciliation to this issue and after a decision is reached, the company will take it to its board for approval and the government will also sought for necessary cabinet approval.
Once cabinet gives approval to the outcome of the conciliation process, the finance ministry will move an amendment to the Income Tax Act, which will have to be approved by Parliament.
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The telecom company is facing this tax liability for the purchase of Hong Kong-based Hutchison Whampoa's telecom business, which involved stake in its Indian venture, Hutchison Essar, in 2007.
After Vodafone won a tax case in the Supreme Court of India, during the tenure of Pranab Mukherjee as the finance minister, the government amended the Income-Tax Act with retrospective effect to undo the ruling.
The Income Tax Department issued a letter to Vodafone International Holdings BV in January, stating that the company is required to pay tax demand of about Rs.11,217 crore along with interest. But Vodafone replied that it does not owe anything to the Indian government.
Chidambaram further added: "It is in India's interest to resolve this case. The current law validates the tax demand."