In a major jolt to talks with UK-based Vodafone, the government has decided to withdraw its conciliation proposal to sort out the Rs 20,000 crore tax dispute with the telecom giant and move ahead with the collection of dues.
The Ministry of Finance has floated a Cabinet note seeking to withdraw the conciliation process with Vodafone International Holdings BV, sources said.
The Cabinet had in June last year approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007.
Although the Finance Ministry was keen on an amicable solution to the long-pending tax dispute, dilly-dallying by the company led to the collapse of the talks.
According to sources, Vodafone wanted to club a Rs 3,700 crore transfer-pricing case of Vodafone India Services with the capital gains tax issue, a demand that could not be accepted by the Finance Ministry.
While the basic tax demand for the 2007 acquisition is Rs 7,990 crore, the outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.
The revenue department, sources said, will pursue the tax demand along with accrued interest and penalty. The I-T department had kept its tax notice to Vodafone in abeyance following the Cabinet decision to resolve the tax dispute through non-binding conciliation talks.
The Cabinet is now likely to soon take up the case as the law ministry has concurred with the Finance Ministry's proposal to withdraw from conciliation.
"The I-T department may proceed as per the provisions of the Income Tax Act to collect the outstanding demand from the company," the law ministry said in its comment on the new Cabinet note.
Vodafone declined to comment on the issue.
