The government will challenge an international arbitration decision favouring the Vodafone Group on a retrospective tax demand of Rs 20,000 crore, sources say.
The government has reportedly decided to act on Solicitor General Tushar Mehta's opinion that the arbitration decision should be challenged.
The top government lawyer, say government sources, has reportedly advised that an arbitration tribunal's decison cannot go against the law passed by a sovereign parliament.
An international arbitration tribunal in The Hague had ruled last month that India's imposition of a tax liability on Vodafone, as well as interest and penalties, breached an investment treaty agreement between India and the Netherlands.
The international tribunal said the government must stop seeking dues from Vodafone and should instead pay more than Rs 40 crore to the company as partial compensation for legal costs.
The tax dispute involving Rs 12,000 crore in interest and Rs 7,900 crore in penalties started with Vodafone's acquisition of Indian mobile assets from Hutchison Whampoa in 2007. The government said Vodafone had to pay taxes on the acquisition but the company disputed it.
A tax demand of Rs 11,000 crore was raised by the government related to Vodafone's $11 billion acquisition.
The Supreme Court had ruled in favour of Vodafone in 2012, but the government, later that year, changed rules which empowered it to tax deals retrospectively. Two years later, Vodafone initiated arbitration proceedings against India.
In July, the Supreme Court asked the Income Tax department to refund Rs 833 crore in taxes to Vodafone Idea. In September, the top court gave mobile carriers 10 years to pay back dues owed to the government, offering some respite for Vodafone Idea.
The cash-strapped telecom major has been struggling to pay its AGR (adjusted gross revenue) dues. So far, it has paid around Rs 7,854 crore of its AGR dues, it still owes roughly Rs 50,000 crore to the government.
