Cabinet clears conciliation to settle Vodafone tax issue

In a bid to break the stalemate on the Vodafone tax issue, the Cabinet on Tuesday approved a proposal for non-binding conciliation with the British telephone major, the outcome of which will have to be ultimately approved by Parliament.

'We have just accepted a proposal for a non-binding conciliation. If the outcome is acceptable to the government then it will go Cabinet and thereafter to Parliament for approval', Finance Minister P Chidambaram told reporters after a cabinet meeting.Vodafone has been involved in a Rs 11,200 crore tax dispute for the purchase of Hutchison's stake in Hutchison Essar in 2007. Chidambaram said that there is no timeline for the conciliation and the government would communicate it to Vodafone in a day or two.He made it clear that the proposal is for conciliation under the Arbitration and Conciliation Act and said it was not arbitration.'Two conciliators will sit together and they would 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 is 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.
'Let's see what the outcome is,' Chidambaram said in reply to repeated questions on what would happen if one of the sides does not agree to it.
The Minister said what the Cabinet has 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. When a questioner suggested that the government's decision today was not in conformity with Committee's recommendations, he said, probably the reporter had not read the relevant paragraph properly.

'The committee has said that there should be no retrospective legislation in tax matters,' Chidambaram said. Vodafone has been facing the tax liability of Rs 11,200 crore for the purchase of Hutchison Whampoas stake in its Indian telecom business Hutchison Essar in 2007.
Although the British telecom firm had won a tax case in the Supreme Court (January 2012), the government had amended the Income-tax Act, 1961 with retrospective effect to undo the ruling.Following that, the Income Tax Department issued a letter in January to Vodafone International Holdings BV stating that the company is required to pay tax demand along with interest.