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Govt Says Cannot Waive Tax On Vodafone And Cairn

UK oil explorer Cairn Energy is facing a tax demand of Rs 10,247 crore, while Vodafone is facing tax liability over its Hutchison Whampoa stake acquisition

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India cannot waive the multi-billion dollar tax liabilities that Vodafone and Cairn Energy face, although it has done the most it could in offering to remove interest and penalty if the principal is paid, Revenue Secretary Hasmukh Adhia said.

He said the government had earlier indicated to companies facing taxes owing to enactment of a law that retrospectively taxed their business, to waive interest and penalty upon payment of principal amount as means to settle the tax dispute out-of-court.

The 2016-17 fiscal year Budget now makes the offer more formal and puts it on statue, he told PTI.

"The government has defined its limits. This is how far we can go," he said.

"Earlier, it was only the signal that we were giving. Now it has come in the statute. The government has now said that this is how far we can go... The government has shown that this is the best we can do and that's why we are putting it in the statute," Adhia said.

The Central Board of Direct Taxes (CBDT) last week said that the tax demand against Vodafone and Cairn Energy has been "rightly generated" and they should promptly avail the one-time dispute resolution scheme announced in the Budget to close the issue by paying the principal tax and getting waiver on interest and penalty.

Explaining why the government could not completely waive the tax demands raised against the MNCs, Adhia said retrospective amendment to Income Tax Act was brought in by the previous government and the current government cannot undo it completely.

"Retrospective law was not done by this government, it was done by previous government. Now for this government to waive the entire thing looks little odd. So this is why the government has said that this is how far we can go," he said.

UK oil explorer Cairn Energy is facing a tax demand of Rs 10,247 crore on a 2006 business reorganisation it carried out in its India unit before getting it listed.

The company says it has paid all taxes due and there was no unpaid liability. It invoked India-UK BIPA to take the government to arbitration over the issue.

British telecom giant Vodafone is also facing tax liability over its $11-billion acquisition of 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007.

While the UK telecom group says it does not owe any tax as the transaction was conducted offshore, the Income Tax Department is seeking taxes on the deal because it involved assets in this country.

Arbitration has been initiated on this issue as well.

Asked what if the companies, which have been contesting the tax demands, end up not accepting the offer to pay the principal amount, Adhia said: "It is for them to take it or not. But the Government's sovereign right to recover will remain".

"In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them," Jaitley had said while presenting Budget for 2016-17 in Parliament on February 29.