The Budget of FY12-13 dropped a tax bombshell by introducing a retrospective change in law from 1962, directed at Vodafone and other similar cases. While my esteemed seniors will doubtless analyze or litigate this change in law, I thought it fit to focus on one point of the amendment i.e. the clause which allows Government to keep its collected taxes.
Item 113 of the Finance Bill reads as follows:
113. Notwithstanding anything contained in any judgment, decree or order of any Court or Tribunal or any authority, all notices sent or purporting to have been sent, or taxes levied, demanded, assessed, imposed, collected or recovered or purporting to have been levied, demanded, assessed, imposed, collected or recovered under the provisions of Income-tax Act, 1961, in respect of income accruing or arising through or from the transfer of a capital asset situate in India in consequence of the transfer of a share or shares of a company registered or incorporated outside India or in consequence of an agreement, or otherwise, outside India, shall be deemed to have been validly made, and the notice, levy, demand, assessment, imposition, collection or recovery of tax shall be valid and shall be deemed always to have been valid and shall not be called in question on the ground that the tax was not chargeable or any ground including that it is a tax on capital gains arising out of transactions which have taken place outside India, and accordingly, any tax levied, demanded, assessed, imposed or deposited before the commencement of this Act and chargeable for a period prior to such commencement but not collected or recovered before such commencement, may be collected or recovered and appropriated in accordance with the provisions of the Income-tax Act, 1961 as amended by this Act, and the rules made there under and there shall be no liability or obligation to make any refund whatsoever (emphasis added).
Now, the Government had already collected Rs 2500 crores, and Vodafone had deposited a Rs 8500 crore guarantee with the Supreme Court. In a 2005 case under Central Excise, ITC had won a Rs 350 crore refund(plus Rs 100 crore accrued interest) from the Supreme Court, but the Government passed a retrospective amendment ('ordinance') which had a similar validation clause. And ITC preferred to write off its deposit of Rs 350 crores (and interest thereof) to earn closure from this transaction.
So will Vodafone take its chances with the Supreme Court again on this issue? Or play it safe, challenge the amendment initially and then write off the Rs 2500 crores if pre deposited? Either ways, given that the government is holding the Rs 2500 crores, it has a strong advantage because it is now Vodafone which will have to take an action to get its own money back, instead of the government having to wait for the review petition before claiming its amount. So this is another lesson why it is better to delay pre deposit of duty to the extent possible, so that one can settle like how ITC did, for the pre deposit amount to buy peace from retrospective amendments.
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