The Essar group is seeking a refund of the $883 million (Rs 4,426 crore) Vodafone Plc withheld as tax to pay the income-tax department while buying 22 per cent stake in Vodafone Essar from Essar.
The move comes a day after the Supreme Court verdict cleared Vodafone of any tax liabilities on its acquisition of a controlling stake in Hutch Essar from Hong Kong’s Hutchison Whampoa. The court said the 2007 deal was structured as a transaction between two foreign entities. Essar held 33 per cent stake in that company.
Last July, Essar Communications and Essar Com, both wholly owned subsidiaries of Essar Communi-cations (Mauritius) Ltd, sold their 22 per cent stake in Vodafone Essar to the Vodafone Group, as part of a larger deal that saw Vodafone buy out Essar’s total 33 per cent stake in Vodafone Essar.
Under the pact, Vodafone paid Essar, but withheld an additional Rs 4,426 crore as tax to be paid to the government. Both companies had then said they believed there was no tax due on the deal, but felt it was “prudent” to deduct and pay withholding tax, and then have Essar Communications and Essar Com claim a refund.
Withholding tax is a measure taken by the government to ensure the parties involved do not evade taxes later, leading to litigation.
An email sent to Vodafone Plc on the matter did not elicit any response, while Essar executives did not comment on the matter.
Vodafone Plc won a case against the income-tax department in the Supreme Court yesterday, which upheld the company’s claim that no tax was payable for its 2007 transaction with Hutchinson Essar. The revenue authorities had claimed even though the deal was done between two foreign entities via share transfer since it involved Indian assets, it should be taxed in India. It had charged Vodafone Plc with not deducting tax at source. The Supreme Court verdict, however, dismissed that charge.