Telecom giant Vodafone on Friday won a significant ruling against the Indian government in an international court over Rs 20,000 crore in dues which it had described as unfair.
The international arbitration tribunal in The Hague ruled that the Indian government's imposition of a tax liability on Vodafone is in breach of the investment treaty agreement between India and the Netherlands, sources told news agency Reuters.
The tribunal, in its ruling, said the government must cease seeking the dues from Vodafone and should also pay over Rs 40 crore to the company as partial compensation for its legal costs, the source said.
"Vodafone has finally got justice. The government of India came with a retrospective amendment trying to recover the tax which the Supreme Court had struck down... The tribunal has today said that this action is violative of the bilateral investment treaty," Anuradha Dutt, managing partner of DMD Advocates, a New Delhi-based firm which argued for Vodafone, told NDTV.
Government sources said that tribunal's ruling meant that "no damages have been awarded against Government of India" but conceded that they will have to pay about Rs 40 crore which is 60 per cent of the tribunal's administrative cost while the rest 40 per cent would be borne by Vodafone.
"Also, Government of India may have to refund the tax collected, which is about Rs 45 crore, only if it does not go for appeal against the award. Therefore, the total outgo would be around Rs 85 crore only.
It is learnt that the award is under study by Indian authorities and its legal counsels who would seek suitable legal remedies at appropriate forums," sources said.
The tax dispute involving Rs 12,000 crore in interest and Rs 7,900 crore in penalties stems from Vodafone's acquisition of the Indian mobile assets from Hutchison Whampoa in 2007. The government said Vodafone was liable to pay taxes on the acquisition, which the company contested.
In 2012, India's top court ruled in favour of the telecom provider but the government later that year changed the rules to enable it to tax deals that had already been concluded.
In April 2014, Vodafone initiated arbitration proceedings against India.
India is entangled in more than a dozen international arbitration cases against companies, including Cairn Energy, over retrospective tax claims and cancellation of contracts. The exchequer could end up paying thousands of crores in damages if it loses.
In a different case, the heavily indebted telecoms firm had won some reprieve earlier this month as the Supreme Court gave mobile carriers 10 years to settle thousands of crores in government dues.
India's telecom providers have to pay the Department of Telecom nearly 3-5 per cent of their adjusted gross revenue (AGR) in usage charges for airwaves and 8 per cent of AGR as licence fees. They have long disputed the definition of AGR but last year the Supreme Court upheld the government's view that the AGR should include all revenue.
(With inputs from Reuters)