SC to review govt petition today

SC to review govt petition today

Last Updated: Mon, Mar 19, 2012 20:21 hrs

Three Supreme Court judges meet tomorrow to consider the government’s review petition on the Vodafone case.

The recent Union Budget has made provisions in the Finance Bill to amend the rules so as to nullify the effect of the judgement in like cases, and with retrospective effect. The relevant clause says tax would be payable in any deal involving share transfer of an asset situated in India, no matter where in the globe the primary decision was taken. With a validation clause making the tax people the final authority in such matters. overriding any court or tribunal order to the contrary.

According to legal sources, the same three-judge bench which had given the earlier verdict will be hearing the review plea. That bench was chaired by the Chief Justice of India, S H Kapadia. The three are to meet in the CJI’s chamber to decide if the case can be reopened. “Tomorrow is not a court hearing in technical terms. If the judges decide the case can be reopened, then the court hearings will begin through a formal notice,” one was told.

The SC had directed the income tax department to refund Rs 2,500 crore to Vodafone and the deadline expires tonight. “If the case is reopened, the tax authorities automatically get an extension to repay and can challenge the refund itself,” said another corporate lawyer.

Tax experts are restive against the change. “It undermines the Supreme Court or any other court. So, it would be dangerous," said Dinesh Kanabar, deputy CEO and chairman, tax, for KPMG in India.

"It seems the revenue department is jittery that despite making changes in the law, the courts may still say that once a decision is made, it cannot be undone, " said Daksha Bakshi, executive director at Khaitan & Co, another law firm. "If constitutionally this backdated clarification is challenged, then by virtue of this validation clause, they will not be able to stop it,” Bakshi added.

A senior finance ministry official defended the move by saying it provided a framework to handle ongoing cases with a revenue involvement of Rs 35,000- 40,000 crore.

Percy Billimoria, senior partner at leading law firm AZB & Partners, said retrospective amendments are contrary to established principles of fair play and lack of uncertainty, which international investors expect. “The problem will be exacerbated in the case of Vodafone. Few realise that Vodafone is being made responsible not for its own tax liability but that of Hutch, the seller of the shareholding,” he said.

Explaining: “That's because if Hutch is liable to tax, then Vodafone in turn may become obliged to withhold such tax from sale proceeds and deposit the same with the Indian treasury. The retrospective taxability to Hutch is bad enough but the problem is compounded when Vodafone is retrospectively held responsible for not withholding such tax. In other words, Vodafone could now be held liable for failure to do something which even the Supreme Court agreed it need not have done and which it cannot possibly do now.

International tax expert Tarun Chaturvedi said that despite the retrospective changes in the law, it would be difficult to sustain the tax demand in the Vodafone case. “You can’t cast an obligation with retrospective effect,” he said.

Adding: “The amendment will tax the seller if the required conditions are fulfilled. However, Vodafone has been charged with failure to deduct tax at source under Section 195 and, hence, on the specific issue, one needs to examine the changes in Section 195 before taking a final call on raising the demand again.”

The government, in fact, is consulting tax experts and the law ministry on whether the proposed changes will allow the government to the sustain tax demand in the case.

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