SC declines to hear PIL on Vodafone tax issue

New Delhi, July 1 (IANS) The Supreme Court Tuesday declined to entertain a PIL seeking direction to the government and the CBDT to enforce the tax demand of Rs.20,000 crore on the telecom giant Vodafone as they could not turn their back on their statutory obligations.

Declining to entertain the plea senior counsel Bishwajit Bhattacharyya, a bench of Justice H.L.Dattu and Justice S.A. Bobde asked him if he had ascertained what steps the income tax department had taken to recover the tax dues in pursuance to its notice to that effect.

"Notice was issued by the tax department... did you find out what steps were taken as follow up of that notice," the court asked as Bhattacharyya as he told the court that not enforcing the tax demand was subversion of the rule of law.

Vodafone declined to comment on the development.

Bhattacharyya told the court that government instead of enforcing the tax demand had appointed former chief justice of India R.C. Lahoti as arbitrator in the tax dispute.

As the court suggested that petitioner to find out through RTI the steps taken by the government, Bhattacharyya said that the union finance minister will not give him the documents. "They have appointed Justice Lahoti as arbitrator that shows that they have bypassed the procedure to collect the tax," he contended.

Not persuaded by Bhattacharyya's submissions, the court dismissed the PIL as withdrawn with liberty that he can move the court again with his plea backed by supporting documents.

Bhattacharyya's PIL said that despite a clear liability to pay the tax, Vodafone has not paid it for the last 27 months, while the government has not shown any manifest inclination to collect the same despite a clear obligation to recover the tax.

The tax dispute between Indian tax authorities and Vodafone is rooted in 2007 acquisition by Netherlands-based Vodafone International Holdings BV of the entire share capital of CGP Investments (Holdings) Ltd. of the Cayman Islands which in turn gave it the control of its Indian assets - Hutchison Essar Limited.

The PIL had said that Income Tax Act does not recognizes conciliation as a dispute settlement mechanism, and only provides for an appeal against its tax notices.

It further said that direct tax issue under the Income Tax Act could not be brought within the ambit of Bilateral Investment Protection Agreement (BIPA) between India and The Netherlands.

"It is a settled law that the treaty obligations (between two sovereign countries) have to be in harmony with the (prevailing) domestic legislations and cannot be in conflict with them," the PIL had said.

The tax authorities had contended that the net result of Vodafone International Holdings BV acquiring the entire share capital of CGP Investments (Holdings) Ltd was that the ownership of HEL also changed and thus it attracted Indian tax net.

The apex court by its verdict of January 20, 2012, had over-turned the 2008 Bombay High Court verdict and held that the deals were not taxable in India as they were entered off-shore.

"We hold that the Offshore Transaction herein is a bonafide structured FDI investment into India which fell outside India's territorial tax jurisdiction, hence not taxable," said the apex court.

The apex court verdict had come in Vodafone's appeal against the 2008 high court verdict, with the firm contending that India could not impose taxes because the transaction was made between non-Indian companies outside the country. The high court had upheld the tax demand.