The Centre on Friday filed a petition before the Supreme Court seeking a review of the apex court’s landmark verdict which had held that the telecom giant Vodafone is not liable to be taxed on its $11.2-billion acquisition of Hutchison’s Indian telecom assets.

The Income Tax (I-T) Department -- which had raised a demand of $2.6 billion (Rs 11,297 crore) on the 2007 Vodafone-Hutch deal -- is now claiming that the apex court judgement “suffers from errors.”

The Government plea said the apex court failed to appreciate the consequences of its judgement on the steps taken by the Government to promote tax transparency and fight tax evasion.

“The court, in legitimising the routing of transactions through tax havens and preventing the I-T department from looking at the substance of the transaction, has failed to take into consideration an earlier judgement of the apex court” in the black money case.

The black money case verdict had held that monies held in tax havens compromise the ability of the state to manage its affairs in consonance with what is required from a Constitutional perspective, the Government said.

It also said that the Supreme Court did not even consider judgements that the Government had cited in support of its legal submissions in over 15 aspects of the Vodafone tax case.

The Government said the apex court also has erroneously observed that “from 2002-03 to 2010-11 the (Hutchison) Group has contributed Rs 20,242 crore towards direct and indirect taxes on its business operations in India.”

The apex court also went wrong in stating that ‘the question involved in the case is of considerable public importance, especially on Foreign Direct Investment’, the Government said. It added that the matter was not related to the Government’s FDI policy at all.

The case did not involve any inflow of money into India, because the sale consideration was admittedly paid outside India by Vodafone International Holdings (VIH), a British Virgin Island company, to Hutchison Telecommunications International (Cayman) Holdings Ltd (CI), a Cayman Island company, and was therefore not a case of FDI into India at all, the petition said.

Also, the Government contends that the apex court wrongly interpreted that only the Direct Taxes Code (DTC) Bill has provisions to tax such offshore share transactions and not the I-T Act.

The relevant provision in the I-T Act (Section 9) also is enough to cover transactions like the Hutch-Vodafone deal, it said.

The apex court, by relying on the provisions of the DTC Bill has failed to appreciate that there is no judicial precedent to rely on a pending legislation to interpret existing legislation, it said.

The review plea also says that the apex court did not properly consider the Agreement for Sale and Purchase of Share and Loans (or SPA) between Vodafone International Holdings (VIH) and Hutchison Telecommunications International Ltd (HTIL).

It was under this SPA that HTIL agreed to procure the sale of the entire share capital of CGP (a Cayman Islands company) which it held through HTI (BVI) Holdings Ltd for VIH.

“A close reading of the SPA was critical to an understanding of the real nature of the transaction,” it said.

Reacting to the development, Vodafone said in a statement that the Supreme Court had “clearly and unambiguously ruled that there was no tax to pay on the Vodafone-Hutchison transaction.”

“Vodafone notes the filing of the tax authority’s review petition, which will be evaluated by the same bench that ruled on the Vodafone-Hutchison case,” the company statement said.

Experts had claimed that the ruling could lead to the pending tax disputes -- including those deals related to the AT&T-Tata Group in Idea Cellular and Sanofi-Aventis – being resolved in the foreign investors’ favour, especially where similar bona fide and international business structuring is done for legitimate commercial purposes.

However, following the verdict, the Finance Ministry had set up a committee to finalise options including filing the review petition.

The Finance Minister Mr Pranab Mukherjee had consulted the Law Minister Mr Salman Khurshid and the Attorney General Mr G E Vahanvati on the issue. The I-T Department had claimed that Vodafone failed to deduct tax at source while acquiring the controlling stake.

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