Clarification on retro amendments offers no reprieve for Vodafone

Despite Finance Minister Pranab Mukherjee trying to placate worried investors by clarifying that retrospective amendments on taxation

Written by ENS Economic Bureau | New Delhi | Published: May 8, 2012 2:21:40 am

Despite Finance Minister Pranab Mukherjee trying to placate worried investors by clarifying that retrospective amendments on taxation will “not be used to reopen any cases where assessment orders have already been finalised,” Vodafone,which is fearing a fresh tax-plus-penalty notice of around Rs 20,000 crore will have no reprieve,legal experts said. According to them,if the proposed validation Clause 113 in the Finance Bill is accepted,a fresh tax notice can be sent to Vodafone.

“This clarification will apply in cases where assessment have been finalised and nothing has been challenged,no notices have been sent and the case has been closed. There is no respite to Vodafone and Vodafone-like deals. The cases pending at various stages of litigation would be decided by those courts as per the then existing legislation. Since validation clause has not been withdrawn,there would not be any reprieve,” Rahul Garg,executive director,PwC,said.

Mukherjee also said that the clarificatory amendments for retroactive taxation proposed in the Bill will not override provisions of India’s double taxation avoidance agreements (DTAA) with 82 countries. However,he said these amendments will apply in cases where the transaction has been routed through low-tax or no-tax countries with which India does not have a DTAA. The 2007 Vodafone-Hutch deal relevant for the Vodafone tax case was executed in Cayman Islands,a tax haven with which India doesn’t have a DTAA.

The Finance Minister,who also deferred the implementation of the proposed General Anti-Avoidance Rules (GAAR) by a year,tried to assuage fears of foreign institutional investors (FIIs) regarding the apprehended misuse of GAAR provisions. He said that the onus of proving the applicability of the anti-avoidance provision would rest “entirely on the revenue department before any action can be initiated under GAAR”.

The panel tasked with deciding the applicability of GAAR would have one “independent” member,a joint secretary or above rank official from the law ministry and two commissioners. This would ensure objectivity and transparency,he said. The committee framing rules for GAAR will submit its report by May 31.

Another controversial proposal that has been dropped relates to an amendment in the Customs Act. The Bill inserted a Section 104 A in the Act making offences with three years or more punishment non-bailable. “In response to concerns expressed by Members that the proposal regarding grant of bail only after hearing the public prosecutor is too harsh,I propose to omit this provision entirely,” Mukherjee said.

In fact,only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh,shall be cognizable but bailable.

Hanging in balance

Finance Minister Pranab Mukherjee has said that retrospective amendments on taxation will “not be used to reopen any cases where assessment orders have already been finalised”

However,according to experts,if the proposed validation Clause 113 in the Finance Bill is accepted,a fresh tax notice can be sent to Vodafone

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