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The Government has agreed to a conciliation process to settle the Rs 11,200-crore tax dispute with global telecom major Vodafone.
The Union Cabinet today approved the proposal by the Finance Ministry. “We have just accepted a proposal for a non-binding conciliation. If the outcome (of the conciliation process) is acceptable to the Government, then it will go to the Cabinet and thereafter to Parliament for approval,” Finance Minister P. Chidambaram told reporters after the Cabinet meeting on Tuesday.
Can be rejected
Since it is ‘non-binding’, the conciliation process can be rejected by either party. Now, a conciliator will be appointed with approval from the Prime Minister and the Finance Minister. The conciliation will take place under the provisions of the Arbitration and Conciliation Act.
Although, he did not give any time frame for completing the process, Chidambaram did mention that in a day or two the Cabinet’s decision will be intimated to the telecom company. He made it clear that the proposal is for conciliation and not ‘arbitration’.
“Two conciliators will sit together and will suggest an outcome or a modified outcome… it is a step-by-step approach. Everything is in the public domain,” he said.
Asked if the tax demand, including for interest and penalty, will be kept in abeyance during the conciliation process, Chidambaram simply said the demand has been validated by the retrospective amendment to the Income-Tax Act.
However, the Revenue Department is now likely to advise the assessing officer to keep the entire demand (tax, interest on tax dues, and penalty total amounting Rs 11,217 crore) in abeyance during the conciliation process. It is also expected that once the outcome is accepted by the Government, the Department will submit a draft of the settlement to the Cabinet.
If the Cabinet approves the outcome, a proposal may be made for legislative changes to address existing and future tax litigation arising out of clarificatory amendments made to the Finance Act, 2012, a highly placed source said.
Acceptable solution
Reacting to the Cabinet decision, Sunil Jain, Partner with J. Sagar Associates, said: “Hopefully, the conciliation process will throw up a solution and a tax amount acceptable to both the taxpayer and the Government.”
Mukesh Butani, Managing Partner, BMR Legal, said: “The Cabinet approval doesn’t really sound like an acceptance. The FM’s statement that it (the Cabinet) has accepted a non-binding offer, followed by appointment of conciliators, bringing the matter back to the Cabinet followed by an amendment to the Income-Tax law sounds complex and time-consuming.”
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