Vodafone backtracks on India stake sale

Vodafone has quietly withdrawn an application by its overseas subsidiary Prime Metals

Written by Amitav Ranjan | New Delhi | Published: April 4, 2012 12:33:20 am

With the Central Board of Direct Taxes breathing down its neck in the $2.5-billion tax dispute,Vodafone has quietly withdrawn an application by its overseas subsidiary Prime Metals for share purchase in Vodafone India Ltd (VIL) to avoid further censure.

Legal consultants of Mauritius-based Prime Metals wrote to Foreign Investment Promotion Board (FIPB) last month that the firm was withdrawing the application as Piramal Healthcare,another Indian shareholder of VIL,had bought the shares held by Essar Telecom Holdings.

“Since the Piramal acquisition involved transfer of VIL shares from a resident India entity (Essar Telecom Holdings) to another resident Indian entity (Piramal),there is no change in the level of foreign investment in VIL pursuant to the Piramal acquisition,” S&R Associates wrote to the FIPB on March 3.

Prime Metals’ application for purchase of 5.485 per cent shares in VIL from Essar’s Indian unit was not linked to Vodafone’s tax dispute with Income Tax Department but had resulted in CBDT claiming a violation of the sectoral FDI cap.

The Department of Revenue had objected to non-resident Prime Metals buying the shares saying that “foreign share holding in VIL stands at 74 per cent and if Prime Metals is given permission to acquire further shares,it would exceed the FDI ceiling of 74 per cent”.

The issue got complicated further with Finance Minister Pranab Mukherjee directing the Revenue Department to refer a related complaint by Lok Sabha member Nishikant Dubey to the Enforcement Directorate.

The FIPB,after discussing the proposal in five meetings,ruled last January that the Prime Metals’ proposal be considered afresh after consulting CBDT and the Law Ministry on the issue of compliance with sectoral cap of 74 per cent.

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