Union Cabinet on 4 June 2013 approved the finance ministry's proposal of a non-binding conciliation in 14000-crore Rupees Vodafone's tax dispute case as under the Indian arbitration law.
Vodafone had initially proposed arbitration under international law. The approval by Union Cabinet is directed towards opening a framework for settlement of tax disputes in India. If the outcome is acceptable to the government, it will then move to the Cabinet and thereafter to Parliament for approval.
Brief Insight over Vodafone tax Issue
It is worth mentioning here that in year 2007 Vodafone was involved in a 11200 crore Rupees tax dispute for the purchase of Hutchison's stake in Hutchison Essar whereas the company contested the authority of Indian tax authorities over the deal, the result was that the income tax department slapped a tax demand notice on the company.
In January 2012 Vodafone won the legal battle against the government with the Supreme Court ruling that the government had no jurisdiction to tax such deals. To argue against the judgement, the government amended the Income Tax Act retrospectively to bring Vodafone-like cases under its domain.
In year 2013 the I-T department issued a 14000-crore Rupees tax notice to the company, the consequence was that Vodafone went to the government with the proposal of conciliation. The offer by Vodafone was made under the UNCITRAL (UN Commission on International Trade Law) rules.
Meanwhile, the proposal was rejected by law ministry on the basis that it was not acceptable under the current Act. Shortly, under the new law minister, Kapil Sibal, the ministry gave a advance for the conciliation talks.