Vodafone wins tax arbitration case against Indian government

In a significant ruling against the Indian government, the international court gave a judgement in favour of telecom giant Vodafone on September 26, over Rs 20,000 crore in dues.

The international arbitration tribunal in The Hague ruled that the Indian government’s imposition of a tax liability on Vodafone is in breach of the investment treaty agreement between India and the Netherlands.

The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay over Rs 40 crore to the company as partial compensation for its legal costs.

The tax dispute involving Rs 12,000 crore in interest and Rs 7,900 crore in penalties stems from Vodafone’s acquisition of the Indian mobile assets from Hutchison Whampoa in 2007. The government said Vodafone was liable to pay taxes on the acquisition, which the company contested.

In 2012, India’s top court ruled in favour of the telecom provider but the government later that year changed the rules to enable it to tax deals that had already been concluded.

In April 2014, Vodafone initiated arbitration proceedings against India.

India has more than a dozen international arbitration cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts. The exchequer could end up paying thousands of crores in damages if it loses.

In a different case, the heavily indebted telecoms firm had won some reprieve earlier this month as the Supreme Court gave mobile carriers 10 years to settle thousands of crores in government dues.

India’s telecom providers have to pay the Department of Telecom nearly 3-5 per cent of their adjusted gross revenue (AGR) in usage charges for airwaves and 8 per cent of AGR as licence fees. They have long disputed the definition of AGR but last year the Supreme Court upheld the government’s view that the AGR should include all revenue.