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30 September Current Affairs

Retrospective taxation: the Vodafone case, and the Hague court ruling

In News:

In a unanimous decision, the Permanent Court of Arbitration at The Hague has ruled that:

India’s retrospective demand of Rs 22,100 crore as capital gains and withholding tax imposed on Vodafone for a 2007 deal was “in breach of the guarantee of fair and equitable treatment”.

India should not to pursue the tax demand any more against Vodafone Group.

What is the case?

In May 2007, Vodafone bought a 67% stake in Hutchison Whampoa for $11 billion.

In September that year, Indian government raised a demand of Rs 7,990 crore in capital gains and withholding tax from Vodafone, saying the company should have deducted the tax at source before making a payment to Hutchison.

Vodafone challenged the demand notice in the Bombay High Court, which ruled in favour of the Income Tax Department.

Then, Vodafone challenged the judgment in the Supreme Court, which in 2012 ruled that Vodafone Group’s interpretation of the Income Tax Act of 1961 was correct and that it did not have to pay any taxes for the stake purchase.

But, the same year, the then Finance Minister, the late Pranab Mukherjee, circumvented the Supreme Court’s ruling by proposing an amendment to the Finance Act, thereby giving the Income Tax Department the power to retrospectively tax such deals.

The case had by then become infamous as the ‘retrospective taxation case’.

What happened after India passed the retrospective taxation law?

The Act was passed by Parliament in 2012 and the onus to pay the taxes fell back on Vodafone.

Later, Vodafone Group invoked Clause 9 of the Bilateral Investment Treaty (BIT) signed between India and the Netherlands in 1995.

Article 9 of the BIT says that any dispute between “an investor of one contracting party and the other contracting party in connection with an investment in the territory of the other contracting party” shall as far as possible be settled amicably through negotiations.

What is the Bilateral Investment Treaty?

The BIT was signed for promotion and protection of investment by companies of each country in the other’s jurisdiction.

The two countries would, under the BIT, ensure that companies present in each other’s jurisdictions would be “at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other”.

What did the Permanent Court of Arbitration at The Hague say?

It ruled in favour of Vodafone. Because, the taxation was in violation of the BIT and the United Nations Commission on International Trade Law (UNCITRAL).

The tribunal also said that now since it had been established that India had breached the terms of the agreement, it must now stop efforts to recover the said taxes from Vodafone.

It also directed India to pay £4.3 million ($5.47 million) to the company as compensation for its legal costs.

What is retrospective taxation?

As the name suggests, retrospective taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.

Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.

While governments often use a retrospective amendment to taxation laws to “clarify” existing laws, it ends up hurting companies that had knowingly or unknowingly interpreted the tax rules differently.

Unlawful Activities (Prevention) Act

In News:

The Assam government has informed a UAPA tribunal that major extremist outfits of the northeast had contacted Chinese authorities for assistance in their “fight against India”, but the Chinese had refused to provide assistance directly or indirectly.

Details:

The United National Liberation Front of West of South East Asia (UNLFWSEA), a Myanmar-based conglomerate of banned outfits such as the NSCN-K, ULFA-I, NDFB-S and KLO, had taken a resolution “to take assistance from a third nation” to achieve their goal.

The conglomerate was formed in 2015. The affidavit is not clear on when it approached the Chinese authorities.

Background:

The tribunal was constituted under the Unlawful Activities (Prevention) Act (UAPA) after the Union Home Ministry extended the ban on the National Democratic Front of Bodoland (NDFB) in November 2019 for five years.

On September 22, the tribunal upheld the ban and declared NDFB an “unlawful association for a period of five years”.

About Unlawful Activities (Prevention) Act:

Passed in 1967, the law aims at effective prevention of unlawful activities associations in India.

The Act assigns absolute power to the central government, by way of which if the Centre deems an activity as unlawful then it may, by way of an Official Gazette, declare it so.

It has death penalty and life imprisonment as highest punishments.

Key points:

Under UAPA, both Indian and foreign nationals can be charged. It will be applicable to the offenders in the same manner, even if crime is committed on a foreign land, outside India.

Under the UAPA, the investigating agency can file a charge sheet in maximum 180 days after the arrests and the duration can be extended further after intimating the court.

Amendments and changes:

The 2004 amendment, added “terrorist act” to the list of offences to ban organisations for terrorist activities, under which 34 outfits were banned. Till 2004, “unlawful” activities referred to actions related to secession and cession of territory.

As per amendments of 2019:

The Act empowers the Director General of National Investigation Agency (NIA) to grant approval of seizure or attachment of property when the case is investigated by the said agency.

The Act empowers the officers of the NIA, of the rank of Inspector or above, to investigate cases of terrorism in addition to those conducted by the DSP or ACP or above rank officer in the state.

Criticisms of UAPA:

The law is often misused and abused.

Could be used against political opponents and civil society activists who speak against the government and brand them as “terrorists.”

The 2019 amendment gives unfettered powers to investigating agencies.

The law is against the federal structure, given that ‘Police’ is a state subject under 7th schedule of Indian Constitution.

National Medical Commission

In News:

The Union government has set up the National Medical Commission (NMC) along with four other autonomous boards while abolishing the MCI.

The four autonomous boards include:

  • Undergraduate Medical Education Board.
  • Postgraduate Medical Education Board.
  • Medical Assessment and Rating Board.
  • Ethics and Medical Registration Board.

These boards have been constituted to help the NMC in day-to-day functioning.

About the National Medical Commission:

The Centre has notified the 33-member NMC, which will be chaired for three years by Suresh Chandra Sharma.

Apart from the Chairman, the NMC will consist of 10 ex-officio members and 22 part-time members appointed by the Central government.

Functions of NMC:

  • laying down policies for regulating medical institutions and medical professionals.
  • assessing the requirements of human resources and infrastructure in healthcare.
  • ensuring compliance by the State Medical Councils with the regulations made under the Bill.
  • framing guidelines for determination of fee for up to 50% of the seats in the private medical institutions.