Supreme Court refuses to give relief to Vodafone

Telecom company Vodafone has failed to get absolute relief from the Supreme Court on the `12,000 crore tax liability fixed by the Bombay High Court earlier this month.

Vodafone had challenged the high court order allowing the government to tax its $11 billion deal with Hong Kong-based Hutchison in 2007.

Refusing to stay the high court’s judgment, a bench headed by Chief Justice S H Kapadia on Monday issued notices to the tax authorities, directing them to determine within four weeks the tax liability of Vodafone.

As Vodafone’s counsel Harish Salve pressed for stay, the CJI told him that the company would have to pay part of the amount.
Appearing for the Tax authorities, Attorney General Goolam E Vahanvati said the revenue department will pass an order within four weeks determining the company’s liability. He said the court could stay the high court judgment only after the company deposited 50% of its liability.

A Vodafone spokesperson said, “We are pleased that the Supreme Court has decided to hear Vodafone’s appeal against the recent Bombay High Court verdict on the issue of jurisdiction. A date for the full hearing will be set on October 25.”

“We firmly believe that this transaction is not subject to tax in India. Furthermore, as Vodafone is the acquiring company, we have clearly not made any capital gain on the sale. We will continue to take whatever actions necessary to defend Vodafone’s position as the matter proceeds,” the company maintained.

Meanwhile, the CBDT chairman SSN Moorthy said the department would issue a demand for around `12,000 crore to Vodafone over the next four weeks.

Similar cases relating to some other companies were under scrutiny, Moorthy said, but refused to divulge names.

Although it counts India among its promising markets, Vodafone cherry-picked 3G spectrum for nine circles for `11,617 crore. In broadband wireless access (BWA) auction, on the other hand, it did not go for even a single circle as the bids skyrocketed.

A tax outgo of `12,000 crore would impact the company in a big way, an analyst said.

Besides the 3G payouts, telecom players operating in India are faced with extremely low average revenue per user (Arpu). With the mobile subscriber base spreading to the rural and remote corners of the country, the Arpu level has fallen to as low as `150 per month.

India is the only market in the world accommodating up to eight telecom operators per circle, triggering an intense tariff war that has put the telcos’ margins under pressure.

“India has also delivered strong results as we saw the bigger players with bigger networks, stronger brands and customer service beginning to take back minutes from the new entrants,” a Vodafone official said after announcing the company’s first quarter
financial results.