The government has decided to withdraw the conciliation offer to Vodafone to resolve the Rs. 20,000-crores tax dispute case and collect the dues after the UK-based telecom company insisted on bringing in transfer pricing disputes within the ambit of negotiations.
The Finance Ministry has floated a draft Cabinet note in this regard, sources said, adding the law ministry has backed termination of the conciliation proceedings with Vodafone.
The Ministry opted to withdraw conciliation talks with Vodafone International Holdings BV after the company served a supplementary notice last month to the government under the Bilateral Investment Promotion and Protection Agreement (BIPA) over the tax dispute.
The notice, sources said, demonstrates Vodafone's reluctance to have conciliation within the scope of the terms approved by the Cabinet in June last year.
While the basic tax demand for the 2007 acquisition is Rs. 7,990 crores, the outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs. 20,000 crores.
The revenue department, sources said, will pursue the tax demand along with accrued interest and penalty. The I-T Department had kept its tax notice to Vodafone in abeyance following the Cabinet decision to resolve the tax dispute through non-binding conciliation talks.
The Cabinet is now likely to soon take up the case as the Law Ministry has concurred with the Finance Ministry's proposal to withdraw from conciliation.
"The I-T Department may proceed as per the provisions of the Income Tax Act to collect the outstanding demand from the company," the Law Ministry said in its comment on the new Cabinet note.
Vodafone declined to comment on the issue.
The Cabinet had in June 2013, given a go-ahead to the Finance Ministry to start a non-binding conciliation talks with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007.
Although the Finance Ministry was keen on an amicable solution to the long-pending tax dispute, dilly-dallying by the company led to the collapse of the talks.
(Also see: Finance minister asks Vodafone to respond to pending tax issue in writing)
According to sources, Vodafone wanted to club a Rs. 3,700 crores transfer-pricing case of Vodafone India Services with the capital gains tax issue, a demand that could not be accepted by the Finance Ministry.
As the matter is pending in Bombay High Court and Government of India is being represented by the Finance Ministry, the issue could not be included as part of the conciliation talks, sources said.
The Supreme Court had ruled in Vodafone's favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.
The government, later in 2012, changed the rules to enable it to make retrospective tax claims on concluded deals.