Vodafone tax case: Govt says yet to decide on whether to contest the Hague tribunal award

The government on Tuesday told the Delhi High Court it is yet to take a call on whether to challenge an international tribunal’s award in the high-profile Vodafone tax case that went in favour of the telecom major, as the “empowered committee of the Cabinet is yet to meet and decide on the issue.” Additional Solicitor General Chetan Sharma sought two weeks for “taking instructions” on the issue. After a brief review, Justice Rajiv Endlaw posted the matter for further hearing on December 8.

The government has taken this stand in the court, even as senior government functionaries continue to assert that India’s sovereign taxation rights are not subservient to bilateral investment treaties with other countries. Even Solicitor General Tushar Mehta has opined that an arbitral tribunal cannot render a law passed by a sovereign Parliament ineffective.

Vodafone on September 25 had won a major international arbitration case against the Indian government in which the Permanent Court of Arbitration had held India in breach of the India-Netherlands Bilateral Investment Treaty (BIT). While quashing the income tax department’s demand of Rs 22,000 crore as tax, penalty and interest on Vodafone, the Hague tribunal had held that India violated the BIT with the Netherlands by retrospectively amending the law.

Even after the tribunal ruling, top sources here have continued to hold that, BITs are only meant to protect investments and that these can’t override the country’s sovereign right over taxation.

Appearing for Vodafone which now operates as Vodafone-Idea in India, senior counsel Harish Salve argued that the telecom major will not proceed with the second arbitration – this one over New Delhi’s alleged violation of India-UK bilateral investment protection agreement (BIPA)–, until the international award already passed (in connection with the Netherlands treaty) is set aside, if at all.

The Bench had in October sought clarification on the issue while hearing the government’s appeal against a single-judge bench’s order on the jurisdiction of another arbitration tribunal. In 2018, Vodafone had initiated the second arbitration proceeding under the India-UK BIPA, over the tax imposed on it for its $11 billion acquisition of the Indian assets of Hutchison in 2007. The government moved the High Court against this second arbitration, but its petition was rejected. It then appealed before the Division Bench.

The Hague tribunal, in its ruling, said the government’s demand is in breach of “fair and equitable treatment” and it must cease seeking the dues from Vodafone. It also directed India to pay 4.3 million pounds ($5.47 million) to the company as compensation for its legal costs.

The Indian government has time till the last week of December to appeal against the arbitration award. “The question of law — the power of an arbitral tribunal to virtually and substantially declare parliamentary legislation of a competent Parliament of a sovereign nation to be non-est and unenforceable — itself is an issue which needs to be challenged. I, therefore, opine that the Union of India must challenge the said award and must file all available proceedings to challenge the award and/or to protect the interest of Union of India,” the SG had stated in his opinion.

In 2012, the government lost the Vodafone tax case related to its $11-billion acquisition of 67% stake in the Indian mobile-phone business owned by Hutchison Whampoa in 2007 in the Supreme Court. It subsequently brought in the controversial retrospective amendment which overturned the SC judgment.

The government had initiated a conciliation process with the company in 2013 but dropped it once Vodafone invoked arbitration under the BIT.