Relief for Voda in Rs 3,200-cr tax case

Girja Shankar Kaura

Tribune News Service

New Delhi, January 28

In a major step towards allaying investors' concerns on tax issues, the Narendra Modi-led NDA government on Wednesday decided against appealing a court order that said Vodafone wasn’t liable to pay Rs 3,200 crore as tax in a transfer pricing case.

"The government will not appeal in the Supreme Court the October 10 order of the Bombay High Court in the Vodafone case," Telecom Minister Ravi Shankar Prasad told reporters after a meeting of the Union Cabinet chaired by PM Modi.

The Cabinet also approved the base price for the auction of the spectrum in the 2100 MHz (3G) band at Rs 3,705 crore per MHz. The price was decided by the Telecom Commission and eventually put forward for approval of the Union Cabinet. By deciding not to go against the HC order, the Modi government has sent a message to the investors across the world that the tax laws will remain predictable in the country.

“By taking this decision, the government has sent a positive signal to investors across the world that it would be fair to them,” said Prasad.

The Income Tax department had asked the company to pay additional income tax alleging that it had undervalued its shares in its subsidiary Vodafone India Services while transferring them to the parent company.

The Bombay HC, in its Oct 2014 order, had said the UK-based Vodafone is not liable to pay an income tax demand of Rs 3,200 crore in a case relating to transfer pricing.

"After legal examination, it was deduced that the HC  decision was right and this fruitless litigation is avoidable," Prasad said. This will help other companies such as Shell that also won a similar reprieve in the Bombay HC last year. 

Vodafone is also mired in a much larger tax controversy for the purchase of 67% stake in Hutchinson Essar in 2007. The claim for this is as large as Rs 11,200 crore. 

Though Vodafone had won the case in the Supreme Court, the then Manmohan Singh government came out with an ordinance and taxed the company retrospectively which resulted in widespread condemnation of Indian tax laws. This case is under arbitration.

Separately, the Cabinet has approved the reserve price for one MHz of 3G spectrum at Rs 3,705 crore, which was much against the expectations of the telecom industry. 

This is 36% higher than what the telecom regulator (TRAI) had recommended for one MHz of airwaves in the 2100 MHz band.

TRAI had reiterated its recommendation of pricing one MHz of 3G bandwidth at  Rs 2,720 crore.

The Cabinet had earlier on January 5, approved the base price for the spectrum auction in the 800, 900 and 1800 MHz bands.

Prasad said the base price for the 3G spectrum auction in 2010 had been pegged at Rs 700 crore per MHz but in the auction the government earned Rs 3,350 crore per MHz. “Keeping in mind the five year difference in the auction, the base price has been kept at Rs 3705 crore per MHz,” he said.

At this price, the government will earn at least Rs 18,500 crore for a block of 5 MHz of airwaves in the 3G band across 17 circles. 

The government expects to earn at least Rs 80,000 crore from the sale of 2G and the 3G airwaves in the auction scheduled to begin on March 4. The telecom industry has been urging the government to expand the supply of 3G airwaves in the upcoming auctions to help keep the prices low.