British telecom giant Vodafone on Friday won an arbitration case against the Indian government over a retrospective tax demand for Rs 22,100 crores, which the Permanent Court of Arbitration in The Hague has described as unfair.
The tribunal, in its ruling, said the government must not seek the dues from Vodafone and should also cough up over Rs 40 crore to the company as partial compensation for its legal costs.
The tax dispute involving Rs 12,000 crore in interest and Rs 7,900 crore in penalties accrued from Vodafone's acquisition of the Indian mobile assets of Hutchison Whampoa in 2007. The government had contended that Vodafone was liable to pay taxes on the acquisition, which the company contested.
In 2012, the Supreme Court had ruled in favour of the telecom provider but the government later that year changed the rules to enable it to tax retrospectively deals that had already been concluded.
The court of arbitration has ruled that India's demand for past taxes was in breach of equitable treatment under a bilateral investment protection pact signed with The Netherlands.
In April 2014, Vodafone initiated arbitration proceedings against India. Friday’s ruling could impact more than a dozen other international arbitration cases against companies over retrospective tax claims and cancellation of contracts. The exchequer could end up paying thousands of crores in damages if it loses.
For instance, the Indian government is seeking Rs 10,247 crore from British oil explorer Cairn Energy Plc over a 2006 reorganisation of its Indian businesses.
It was not immediately known if the Indian government will abide by the arbitration award. The government's liability will be restricted to about Rs 75 crore -- Rs 30 crore in cost and another Rs 45 crore in tax refund, sources with direct knowledge of the matter said.
Shares of Vodafone Idea Ltd zoomed nearly 14 per cent on Friday after it won the arbitration case. "The award is confidential but Vodafone can confirm that the tribunal has found (it) in its favour," the service provider said in a statement. "We are studying the lengthy documents and can make no further comment at this time," it added.
