5.5.2020 -- Supreme Court dismisses Vodafone's $ 629 million tax refund claim [See 2020 Legal Eagle (SC) 369]

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The ruling is another setback for the British telecom giant’s Indian arm, after mobile operators in the country lost a case and were asked to pay $19 billion in total government demands. Vodafone Idea Ltd. is struggling to pay $7.2 billion in back fees to India’s government.

In a partial relief to cash-strapped Vodafone IdeaNSE 0.00 %, the Supreme Court on Wednesday asked the Income Tax department to refund Rs 733 crore within four weeks, which the telecom operator had sought as part of a larger tax dispute.

Its contested total refund, amounting to Rs 4,759 crore, will help pay at least a part of its statutory dues worth more than Rs 58,000 crore or meet capital expenditure needs.

"... we direct that the amount of Rs 733 crores shall be refunded to he appellant within four weeks from today, subject to any proceedings that the Revenue may deem appropriate to initiate in accordance with law," the apex court said.

Shares of Vodafone Idea closed about 5% higher on the BSE on Wednesday.

The telco, which still needs to pay over Rs 51,000 crore of its adjusted gross revenue (AGR) dues to the government, has been involved in various tax-related disputes with the I-T department.

This includes a Rs 20,000-crore withholding .. tax dispute related to its Hutchison stake buy in 2007, which is currently under international arbitration. The company was then known as Vodafone Mobile Services Ltd.

The telco had sought the Rs 4,759 crore refund for assessment years 2014-15 to 2017-18.

The top court’s refund order was for assessment year (AY) 2014-2015.

A bench comprising Justices U U Lalit and Vineet Saran said that for AY 2015-2016, the demand was for Rs 582 crore.

It ruled that the IT department was entitled to invoke powers under Section 245 of the I-T Act to set off the amount of refund payable in AY 2014-15 against tax still to be paid by the carrier.

The court also ordered the tax department to finish as early as possible proceedings related to the refund demand and scrutiny of income with respect to assessment years 2016-17 and 2017-18.

“Except for the directions as indicated, we see no merit in any of the contentions advanced by the appellant (Vodafone). This appeal is, therefore, dismissed without any order as to costs,” the bench ruled.

Sumit Mangal, Partner, L&L Partners- Law Offices, said the Supreme Court had, in fact, “dismissed Vodafone's appeal and upheld tax department’s action of withholding approximately Rs 4,000 crore in refund due to pendency of tax proceedings for various years.”

He also said there was “still some uncertainty on the refund”.

If Vodafone Idea does get the refund, the top court's order will be the second monetary boost it has received this year. About a week ago, Vodafone Group Plc, one of the parents of Vodafone Idea, injected Rs 1,530 crore ($200 million) as accelerated payment to help it manage its operations.

"Their Ebitda (earnings before interest, depreciation, taxation and amortisation) is just sufficient to meet the interest cost on debt. The telco doesn’t have flexibility to fund capex and needs equity injection to pay AGR dues and fund capex to remain competitive in the market,” said Nitin Soni, senior director, corporate ratings at Fitch Ratings.

The telco’s Ebitda was Rs 3,420.5 crore in the quarter ended December 31, while net debt stood at Rs 103,310 crore.

The case is also expected to have wider impact, analysts said.

“This will bolster the case of the tax department wherein there is an ongoing assessment and the tax officer is of the opinion that granting the refund (when there is a likely tax demand) would be prejudicial to the interests of revenue,” said Amit Maheshwari, tax partner at consulting firm AKM Global.

05 May 2020