Retrospective law would make India a pariah state: BRAIN

Taking strong exception to Rashtriya Swabhiman Andolan’s act of calling Finance Minister Arun Jaitley “Vodafone Minister” for not extracting from the company its dues owing to a retrospective law, Bharat Revolutionaries, Academics and Industrious people’s Network (BRAIN) has issued a statement saying KN Govindacharya’s outfit is “100% wrong” on the issue.

The UPA Government’s action following the judgment by the Supreme Court on the Vodafone case has been aptly described as “tax terrorism” of the Indian state, the statement read. No country, which claims to be one governed by laws, can make retrospective laws that affect one set of parties adversely, said the newly formed right-of-centre thinkers’ group.

The Vodafone case, as BRAIN sees it, is simple:

1. Hutchinson Whampoa sold its Indian telecom operations to Vodafone, UK, through an offshore structure.
2. Tax laws hold that the seller pays capital gains. However, since Hutch was an offshore entity, beyond the legal jurisdiction of Indian tax authorities, the Income Tax department (IT) went after the ‘buyer’ instead, under withholding rules.
3. Vodafone was assessed a withholding tax — which the IT claimed they failed to do — and then levied penalty and interest on top of it. This amounted to whatever the figure is: Rs 20,000 crore or so.
4. Vodafone claimed that the transaction could not be assessed under Indian tax laws as both buyer and seller were offshore entities. IT said the underlying assets were Indian, and hence they were eligible to lift the corporate veil of the offshore entities as they were “colourable devices” designed to evade tax.
5. Vodafone and IT fought a lengthy battle on this issue, which finally landed up in the Supreme Court. The apex court ruled in favour of Vodafone; the gist of the judgment was that Vodafone had abided by the letter of the law. If IT wanted to tax the substance of any transaction, instead of the structure (which could be two entirely different things), then they should have ensured that the law was drafted and read accordingly. As the current law stood, Vodafone had acted within its bounds.
6. Instead of giving up the ghost, the UPA Government passed a law that effectively nullified the SC verdict (remember another case, Shah Bano?) by doing a really nasty thing: It made the law retrospective in nature. In effect, now Vodafone could be tried under a law that did NOT exist when it did the transaction!
7. Under the threat of this retrospective amendment, the UPA then offered “reconciliation” to Vodafone under the IT rules. Vodafone did not respond, and instead filed for international arbitration under the relevant tax treaty rules. That is where the matter stands now.

“The case is expected to conclude with international arbitration favouring Vodafone. There is absolutely no case for India,” says Supratim Basu of BRAIN, adding, “A retrospective change to laws essentially means that no law of India is worth the paper it is drafted on. Chuck it all in the bin. India has become a lawless, banana republic!”

It is up to the NDA Government to decide whether it wants to make India a pariah state by trying to seize Vodafone’s assets in India, or acknowledge that the original case was wrong and move forward, Basu said.

He said a better solution now would be to cancel the retrospective part of the law — which was widely expected in this budget, but did not happen — and not purse further litigation with Vodafone, which would be a criminal waste of taxpayer money.

“Applying any law retrospectively or making any retrospective law is ridiculous and fraudulent. It is breach of trust apart from being unconstitutional,” said BRAIN’s Varun Arya.

Basu and Arya are also members of the Swarna Bharat Party launched by members of the Freedom Team of India and others led by Sanjeev Sabhlok, a former bureaucrat.