Finance ministry calls off conciliation in Rs20,000-cr Vodafone tax case

The government has decided to withdraw its conciliation proposal to telecom giant Vodafone in the Rs20,000-crore tax dispute, allowing the revenue department to collect the dues from the company.

The move comes days after the government allowed Vodafone Group Plc to acquire 100 per cent stake in its Indian operations (See:Cabinet clears Vodafone's Rs10,141-cr buy-out of India operations).

The finance ministry has sought approval of the cabinet committee on economic affairs (CCEA) to withdraw from conciliation talks.

Vodafone Group, the world's third-largest telco by subscribers, owed the Indian tax authorities over Rs11,200 crore by way of withholding tax on its $11-billion acquisition of a controlling stake in the then Hutchison Essar (now known as Vodafone India Ltd) in 2007.

This amount along with interest and penalties works out to around Rs20,000 crore.

The finance ministry has floated a cabinet note seeking to withdraw the conciliation process with Vodafone International Holdings BV, sources said.

The union cabinet had, in June last year, approved the ministry's proposal for conciliation in the resolution of the tax issue relating to Vodafone's capital gains in the acquisition of Hutchison Whampoa's stake in Hutchison Essar (See: Cabinet approves conciliation in $2 bn Vodafone tax row).

However, the talks collapsed with the company seeking to club a Rs3,700 crore transfer-pricing case of Vodafone India Services with the capital gains tax issue.

The law ministry has concurred with the finance ministry's proposal to withdraw from conciliation and once the cabinet approves the proposal, the revenue department is expected to move for recovery of the entire amount.

"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.