Tue, Nov 16, 2010 - Page 12 News List

Indian court orders Vodafone to deposit US$554 million over unpaid tax bill

AP, MUMBAI AND NEW DELHI, INDIA

India’s top court ordered Vodafone to deposit 25 billion rupees (US$554 million) within three weeks on its contested US$2.5 billion tax bill, a company spokesman said yesterday.

The court also said Vodafone must arrange a guarantee with an Indian bank for the remaining 85 billion rupees within eight weeks.

The court has not yet rendered a verdict in the case, which is being closely watched by foreign companies fearful that it could set a precedent that may make them liable for retroactive changes under Indian tax law.

Vodafone, which strongly contests the tax bill, said the US$554 million deposit would be held by the court. Should the Indian tax department withdraw the money, they will have to repay it, with interest, if the case is decided in Vodafone’s favor, the spokesman said.

The tax relates to Vodafone’s 2007 acquisition of the Indian telecom assets of Hong Kong’s Hutchison Telecommunications International Ltd.

Vodafone, whose joint venture with India’s Essar group is one of India’s largest mobile operators, maintains that it does not owe tax on the US$11 billion transaction because it took place between two foreign entities.

In related news, Indian Telecommunications Minister Andimuthu Raja has resigned amid allegations that his handling of the 2008 sale of licenses for cellphone airwaves resulted in massive losses for the government.

Raja, who belongs to a southern Indian political party that is a key ally of Indian Prime Minister Manmohan Singh’s Congress party, came under heavy pressure to resign after a government inquiry reportedly alleged that the sale of second generation (2G) wireless spectrum had resulted in a 1.76 trillion rupees loss to the Treasury.

Critics charge that Raja’s allocation of 2G spectrum was improperly based on 2001 prices and unfairly awarded licenses on a “first come, first served” basis, rather than by auction.

He was the third senior official to step down in recent weeks. The Congress party earlier axed parliament secretary Suresh Kalmadi, who was also chief organizer of the scandal-plagued Commonwealth Games in New Delhi, and Maharashtra chief minister Ashok Chavan, who figured in a real estate scandal.

Raja came under additional pressure after a May auction of third generation spectrum garnered US$14.6 billion, highlighting the revenue shortfall from the 2G licenses. That drove the telecom regulator to propose a retroactive hike in 2G spectrum fees, based on 3G pricing, causing an outcry among Indian telecom operators.

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