Govt seeks review of Vodafone tax verdict

Contends that the apex court failed to appreciate that the deal did not involve FDI inflow into India

The government today filed a petition in the Supreme Court seeking a review of the verdict on Vodafone tax case,where the apex court declared that the income-tax department has no jurisdiction to tax the $11.076 billion off-shore deal.

The majority judgment was delivered by a Bench of Chief Justice of India SH Kapadia,Justices KS Radhakrishnan and Swatanter Kumar in January 2012.

Rejecting the I-T departments claim that the telecom MNC was liable to pay Rs 12,000 crore capital gains tax on the 2007 Vodafone-Hutch cross-border deal that created Vodafone-Essar,the Supreme Court had held that the offshore transaction between Hutchison Telecommunications International Ltd (a Cayman Islands company) and Vodafone International Holdings (a company incorporated in The Netherlands) to transfer shares of CGP (a company incorporated in Cayman Islands) was a bonafide structured foreign direct investment into India which fell outside Indias territorial tax jurisdiction,hence not taxable.

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The court had also noted that the offshore transaction was not a sham or tax avoidant preordained transaction.

Sources said the government contends in the review that the court failed to appreciate that the deal did not involve foreign direct investment (FDI) inflow into India.

FDI flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law. Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner, Justice Kapadia had observed in his judgment.

Meanwhile,Vodafone,in a statement,said it had noted the filing.

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Vodafone notes the filing of the tax authoritys review petition,which will be evaluated by the same bench that ruled on the Vodafone-Hutchison case,and has no further comment to make at this stage, the operator said.

In May 2007,Vodafone bought Hutchison Telecommunications Internationals 66.98 per cent stake in Hutch Essar for $11.076 billion. Hutchison controlled its Indian telecom subsidiary through a Cayman Island firm called CGP. CGPs shares were sold to Vodafone,which became majority owner of the Indian telecom firm.