Essar says to seek tax refund in Vodafone deal

Following the Supreme Court clearing British telecom major Vodafone Plc of its Rs 11,000 crore tax liability on Friday, its former Indian partner, Essar, is now seeking a refund of tax to the extent of US$883 million.

Essar Group sources aver that Vodafone had deducted as much as Rs 4,426 crore equivalent to $883 million as withholding tax, in anticipation of a possible tax claim, while purchasing Essar’s stake.

The deal was sealed by Vodafone Plc and the Essar group in July last year. Withholding tax is a measure taken by the government to ensure that the parties involved do not evade taxes later.

 The Bombay High Court had upheld IT department’s jurisdiction in claiming tax.

“They were under pressure from income tax department then. So, it was deducted. But now we have to ask them,” said an Essar Group official.

Vodafone had paid $400 million as its part of tax, while Essar Group paid $480 million (Rs 2,414 crore). Tax refunds, if any, would be collected by the Essar group at a later date.