Why the govt would be justified in not accepting the Vodafone award

At the heart of the dispute are two conflicting doctrines and what both sides need now is a face saver

The government’s tax dispute of Rs 20,000 crore with Vodafone has been settled, for the time being, by a process of international arbitration in favour of Vodafone.

It remains to be seen if the government accepts the arbitration award or seeks fresh redressal. Most people believe that it should accept the award. But it would be justified in not doing so either.

This is because at the heart of the dispute are two conflicting doctrines — the right to fair treatment and the absolute nature of sovereign power which includes actions with retrospective effect.

If fair treatment is desirable in itself, sovereign power too is absolute in itself. Whatever constraints there are, are self-imposed.

So the question arises: which should prevail when they come into conflict?

If the right to what is regarded as fair treatment is conceded, it can be viewed as an abridgement of sovereign power. On the other hand, if it’s not, it tends to reflect poorly on the government.

This is true not just in this case and for India. It is a problem for all governments and has been so for time immemorial. There is no easy way out, especially in matters of taxation.

Prime Minister, Narendra Modi addressing at the inauguration of the Patrika Gate in Jaipur, through video conferencing in New Delhi.

Indeed, the other variant of the sovereign power to tax, which is encapsulated in the doctrine of eminent domain, allows governments to take over private property.

It is the result of the exercise of absolute sovereign power. What governments want, they can take — which is why in the US the doctrine is called takings!

The right was first exercised in 13th century England when the king wanted a saltpetre mine to make ammunition. The owner refused and the king just took it over anyway.

It can be harsh to the extent of being brutal if the sovereign regards it as being in national interest.

This sort of sovereign right is not confined to land alone, though that predominates. It has been used for taking over other things as well, such as patents, trade secrets and copyrights. And of course taxation.

Therefore, as we have seen since 2012, much can be said on both sides.

Those who have criticised the late Pranab Mukherjee, who imposed the tax in 2012, don’t realise one thing, namely, that it’s not the tax demand alone but the sum being demanded also that is seen as a violation of the right to free treatment.

If the demand had been for Re 1 instead of Rs 20,000 crore, Vodafone would probably have happily paid. And the government would have established its right to exercise its sovereign power in any manner it felt necessary and appropriate.

In all such situations a face saver is necessary. This is what the two sides should work towards now.

Quite honestly speaking the government doesn’t really need the money. Rs 20,000 crore would be handy but remember the budget is almost Rs 25 trillion.

And, equally, Vodafone having made the point that it has been wronged, can make an offer that suits both sides.

This is what must be done now.

(Twitter: @tca_tca)