Although Vodafone won the tax dispute, the government then carried out an extremely rare action of changing the law and applying it retrospectively so that Vodafone is once again liable for taxes on its purchase of the majority stake in Hutchison Essar.
The government is able to negotiate a settlement in a tax dispute using he discretionary power of the assessing officer.
Although the government would not get the full amount – it is being reported that half is on offer – it would avoid Vodafone taking the matter to international arbitration as it has threatened to do. Such a move could delay settlement by years, even assuming the government were to win.
Hutchison Telecom has also been reported to be interested in reentering the Indian market, but the tax dispute is holding it back as it could be potentially drawn into the matter if it were to set up a local subsidiary company.