Govt may not appeal in Rs3,000-cr Vodafone tax case

The government seems to have given a go-by to its Rs30,000-crore tax (about $490 million) claim on British telecom group Vodafone, deciding not to pursue an appeal against the ruling in favour of Vodafone, following advice from the attorney-general not to aggressively target taxation affairs of foreign businesses.

The Narendra Modi government is trying to shed the Indian government's image as not-so-friendly to foreign business, by trying to look elsewhere while the businesses avoid paying billions in taxes by round-tripping of capital transactions.

For the Narendra Modi-led Bharatiya Janata Party at the centre the pursuit of tax cases against foreign tax dodgers is still ''tax terrorism'' and finance minister Arun Jaitley often refers to the government's policy of making India a business-friendly destination.

Vodafone last month won a ruling in its favour in the tax case from the Bombay High Court and sources say the government's attorney general Mukul Rohatgi has recommended against an appeal in the Supreme Court.

''I have asked the income department to accept the judgement of the high court. I have said in my opinion don't file an appeal,'' PTI quoted Rohatgi as saying.

If the cabinet agrees with the recommendation, it will signal a further softening of the country's tax regime, providing welcome relief to several foreign companies, including Anglo-Dutch oil group Shell, US-based technology group IBM and British energy explorer Cairn, which are all fighting similar tax claims in India.

Vodafone won its appeal in a case relating to ''transfer pricing'', which relates to the way multinational companies account for services provided by local subsidiaries to divisions in other countries.

However, there is a chance of the revenue department disputing the government's move on the specious argument that frequent tax battles have damaged India's reputation as an investment destination.

Vodafone, however, would still be fighting a long-running $2.6bn case relating to its 2007 acquisition of Hutchison Whampoa's stake in Indian telecom group Hutch-Essar, which is awaiting international arbitration.