SC allows Vodafone to start second arbitration in $2 bn Indian tax dispute

British telecom firm Vodafone Plc will initiate a second arbitration process against the government of India under the India-UK investment pact over the $2 billion (Rs11,000crore) tax claim of the Indian tax authorities after the Supreme Court today cleared its application.

A two-judge panel of the apex court said a second arbitration tribunal may be set up and its proceedings can begin after the Delhi high court formally lifts a stay order on the move, which is expected in January.

Vodafone, the world's second-largest mobile operator, has already initiated arbitration proceedings against Indian authorities under the India-Netherlands investment pact.

Vodafone entered India in 2007 by acquiring Hong Kong-based Hutchison Whampoa's wireless assets in India through its Irish arm, paying tax neither in the UK nor in India.

In February 2007, Vodafone bought a 67-per cent stake in Hutchison Essar a joint venture of Essar Group and Hutchison Wampoa of Hong Kong in a $11-billion deal, and entered the Indian market.

Vodafone, which has been making losses, especially after the emergence of Reliance Jio, finally decided to merge with Idea Cellular even as the tax dispute continued to haunt the telecom firm.

The Income tax authorities in India slapped an over $2 billion tax bill on the telecom firm over lost revenue from the transaction involving an Indian entity, Essar Telecom.

The Supreme Court, however, ruled in 2012 that Vodafone was not liable to pay any tax over the transaction. But the central government changed tax laws, allowing it to make retroactive tax claims on completed deals.

Vodafone, whose local unit is India's second-largest mobile carrier, holds it is not liable to pay any tax over the Hutchison acquisition.