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Cabinet approves conciliation to settle Vodafone tax case
Sanjeev Sharma/TNS

New Delhi, June 4
In a move that will improve the sentiment of foreign investors, the Cabinet on Tuesday approved a proposal for non-binding conciliation with Vodafone in its Rs 11,000-crore tax liability case when it acquired Hutchison assets in India.

The outcome of settlement will have to be approved by the Cabinet and Parliament. “We have just accepted a proposal for a non-binding conciliation. If the outcome is acceptable to the government then it will go to the Cabinet and thereafter to Parliament for approval,” Finance Minister P Chidambaram said.

Vodafone had been asked to pay Rs 11,200 crore tax on its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar. The demand included Rs 3,300 crore of interest over delayed payment.

The conciliation seeks an out-of-court settlement in the matter and issues like waiver of interest and penalty in the case will be discussed.

Chidambaram said there was no timeline for the conciliation and made it clear that the proposal was for conciliation under the Arbitration and Conciliation Act and not arbitration.

“Two conciliators will sit together and come out with an outcome. It is not an arbitration. They will suggest an outcome, a modified outcome and it is a step-by-step approach. Everything is in public domain,” he said.

Chidambaram said it was in India’s interest to resolve the case through the process of conciliation and not in an arbitrary manner. “Ultimately, the final word will be that of Parliament. It is a non-binding conciliation,” he said.

Chidambaram added that what the Cabinet had done on Tuesday was strictly in accordance with the Parthasarathi Shome Committee’s recommendations, which had suggested that past disputes should be resolved through conciliation and not through retrospective amendments to tax laws.

“If both sides (Vodafone and the government) agree on the outcome of the non-binding conciliation then the matter will be taken to Parliament by an amendment to the Income Tax Act,” he said.

"The tax demand has already been made so whatever the status of tax demand today will continue ... Cabinet has approved that conciliator can be appointed. We will go with the names to Prime Minister", he said.

The Supreme Court last year had ruled in Vodafone's favour, saying the British company was not liable to pay any tax over its 2007 acquisition of mobile phone assets in India.