Spare Vodafone – Save Thousands of Jobs: Ex-Chief Justice Kapadia

Ex Chief Justice S. H. Kapadia

Spare Vodafone – Save Thousands of Jobs: Ex-Chief Justice Kapadia

Editorial Team
Ex-Chief Justice of India S. H. Kapadia is a man of immense wisdom and learning and is not afraid of speaking his mind. He comes clear on the Vodafone amnesty controversy, GAAR and the problems plaguing the Indian tax administration today and offers valuable suggestions on how to resolve them

Vodafone is destined to be a saga of never-ending controversy. The raging controversy at the moment is whether the newly appointed Law Minister Kapil Sibal was justified in overruling the decision of his predecessor Ashvini Kumar on the grant of amnesty to Vodafone over its’ tax liability of Rs. 19,000 crore.

S. H. Kapadia put the entire controversy in its correct perspective by sending the gentle reminder that the Government’s rough-neck policies of tax collection were driving away foreign investors to other Countries

In the deafening political hullabaloo, one needs to pay close attention to the words of wisdom from Ex-Chief Justice of India S. H. Kapadia.

Speaking at the IFA Conference in Mauritius, S. H. Kapadia put the entire controversy in its correct perspective by sending the gentle reminder that the Government’s rough-neck policies of tax collection were driving away foreign investors to other Countries. “India needs investment for employment generation and advancement of its economy and everyone needs to keep that in mind” he said.

Kapadia drew from his own personal experience to prove the importance of a sensible tax strategy to attract foreign investors. He pointed out that after the judgement of the Supreme Court was delivered holding that Vodafone was not liable for paying the Rs. 19,000 crore of tax demanded by the Government, he was told by “thousands of youth” that their jobs were saved due to the judgement.

One can detect a tinge of regret in Kapadia’s voice that the Government did not respect the Vodafone judgement and instead enacted retrospective amendments to nullify it. And now, when the pendulum is turning to the other end and the Government wants to give Vodafone an amnesty, there are still voices of dissent and protest.

The other issue about which the Ex Chief Justice was critical is the bad drafting of laws and the way they are interpreted. Kapadia has on earlier occasions pointed out that the way in which the tax laws are drafted is not at all satisfactory. He warmed up on the same theme and pointed out that the main problem was that the laws were so complex that a tax officer could interpret a rule in the way that suits him for meeting the revenue collection target.

Indian tax laws were so complex that foreign investors had no clue on what their tax exposure is and a huge demand such as the one raised on Vodafone creates an unpleasant and shocking experience. Such arbitrary action shakes their confidence and they are hesitant to make further investments into India

The Learned Jurist suggested that there should be clear distinction between rules and standards when it comes to tax matters and gave a classic example to explain his point. Suppose there is a “standard” providing that motorists should “drive carefully“. This can mean anything and can be interpreted to suit one’s own convenience. On the other hand, if there is a “rule” stating that motorists should not exceed a speed limit of 60 KmPh, there is no scope for confusion and everyone knows what the Rule means, Kapadia explained.

Kapadia pointed out that Indian tax laws were so complex that foreign investors had no clue on what their tax exposure is and a huge demand such as the one raised on Vodafone creates an unpleasant and shocking experience. Such arbitrary action shakes their confidence and they are hesitant to make further investments into India.

Kapadia urged the Government to ensure that the language of the statute is made very clear. He suggested that everyone including lawyers, accountants and tax consultants needed to work on this and support the Government.

Incidentally, Kapadia is not the only Jurist to bemoan the sorry state of tax laws in the Country. Even Justice Swatantra Kumar, who was a party to the Vodafone judgement, expressed anguish that tax avoidance was the result of complex tax laws & a hostile tax department.

Kapadia also expressed grave concern that GAAR would become a source of great harassment for taxpayers. He advised the Government to ensure that GAAR should only be an anti-abuse rule on tax matters and not on anti-avoidance. He also suggested that a principle of reasonableness needs to be applied and that even if a taxpayer failed to comply with the rules, the authorities must follow a fair procedural framework, so that the taxpayer does not feel victimized.

33 comments on “Spare Vodafone – Save Thousands of Jobs: Ex-Chief Justice Kapadia
  1. gopal nathani says:

    what he has said is only about the government mishandling of the vodafone case. and there should be no two opinions about it.

    his words clearly suggest that the amendment to plug vodafone must be made from prospective date and until the time DTC is formed.

    it is loud and clear and government must work in that direction. there is a last minute opportunity to hear what Hon’ble SHK advocate. so listen to him and listen to his great wisdom which is much greater now that he has vacated his chair.

  2. I.S.verma says:

    I do agree.

  3. MRK Gandhi says:

    It is shocking why Justice Kapadia to step in. In view of his postion best course is silence. If employment is criteria then all the large scale tax evaders and bank defaulters should be let off. Has not Kapadia seen the muck in Courts; but failed to set matters right. Retrospective amendment to save a tax evader shocks the conscience of ordinary people. Of late, the Judges of superior courts are expressing their personal views against various judgments; which is totally unwarranted. Judges cannot criticise judgments of thier collegues.

  4. CA (Dr.) S.C.Jain says:

    I believe that retrospective amendments in the Act to annul the judgement of the Apex Court should tentamount to contempt of Court. It is strange that how a citizen can be made abide by a law which was non existent at the relevant time.

    CA (Dr.) S.C.Jain

  5. Mahendra says:

    It best suits the BRIBE culture. Enact retrospective law, SHOW THE STICK, ask to fill up coffers of Individuals through Trusts and then grant AMNESTY. IS NOT THIS INDEPENDENT INDIA’S GOVERNING CULTURE.

  6. vswami says:

    This, in one’s own individual perception but firm conviction, is a matter of common concern to every one having ‘vested interests’, – albeit,to begin with from his individual standpoint but ultimately from a societal standpoint. Requiring to be focussed on is, in the very nature of things, that must be considered as not only the concern of either the legslature or exceutive or judiciary, on a standalone basis; and in any case, not as one of concern xclusively of the professionals (lawyer or CAs or any other) alone.

    TO add (as one more pinch of salt): Own viewpoints are summed up in the personal Blog @

    (Caution > Invitation to Read the Blog, withy the object of further useful deliberation, is extended only to those, still left with an open (NOT CLOSED SAME WAY AS A ROAD BLOCK OR BLOOD CLOT) mind, hence prepared to spare own insightful thoughts, with the aim of ‘objectively’ forming an incisive view and profo’undly better conclusion)

    With a view to share own personal reaction,

  7. jrbhatt says:

    The concern of the ex chief justice may not suit the exchequer since the law making and their makers have lost the objectivity and poor drafting has added fuel to the fire. section 40(a)(ia) is one such amendment in act which is brought to statute as has been explained is with the object of facilitating the gathering of taxes at first point (TDS), But its effect on taxpayer has not been considered in its perspective. there are cases where if the person has failed to deduct Rs.1,00,000/- the consequences in terms of section 40(a)(ia) would require him to pay Rs.30,00,000/-. i am unable to comprehend that the legislature had ever intended such magnitude of after effect. further even when the issues were considered by the legislature they have made changes in piecemeal basis thus the true benefit of such amendment has already lost its effect and the assessee concerned have already suffered to a large extent. further when it comes to rectification the legislature have always amended provisions retrospectively when law is interpreted against the legislature but have failed to take such corrective measures when it was to benefit the assessee. Thus all these problems. the legislature should ponder over such issues and act objectively without making the same as prestige issues. Hope better view will prevail.

  8. K.VASANTKUMAR says:

    As I have seen the present political administrators are bent upon to do any thing and every thing and I do not think they heed to peace of advice by former Chief of Supreme Court though it is really touching. Example is recent amendment to the provisions of Sec.40(a) by inserting a clause to deny deduction to State undertaking anything paid to State in any name. Though it is brought to the notice of P.M. by a direct letter written by Chief Minister of Tamilnadu and another letter by FM of Gujarat they went a head and made the amendment. Most unfortunate is none of the MPs discussed this in the parliament. This provision in fact affects the viiability of many state undertakings since what they paid is not allowed as deduction and they are made to pay tax where as similarly placed private sector will get deduction or even Central undertaking gets deduction and avoid tax. Therefore the state undertaking may become unviable and may have to be closed. Therefore this attempt is nothing but an imperialistic. But I do not find any one in this country speak of this. All the politiiciians are concerned with their own prospects and do not pay any concern to their state and all taxation specialists also look only to the provisions that affect a private sector and not a public sectors. In spite of his experience with the set up at the centre I really appreciate the attempt of former Chief and I only hope that the sinking ship listens to this.

  9. yogesh s limaye says:

    does that mean that the learned judge wants to accept that the judgement was given looking at the FDI position (refer last para of separate judgement of radhakrishnan), its impact on economy, un-employment etc RATHER THAN provisions of income tax act ? one of the main question i have is that there are various important questions answered by SC without giving its logic e.g. they say that subsidiary cos are not puppets but where is the application of this test to the facts of the case ?, as per the due diligence report, it was informed that the directors of the subsidiarycompanies had given their resignations already

  10. Dharm says:

    The whole Vodafone tax case is and was based on nationalistic emotion, which I suppose should not happen in a progressive country like our. As per The laws prevailing at the time of transaction, no tax liability arose and the same was decided by the Apex court of land. But as mentioned earlier due to nationalistic emotions the goal post was changed bY amending the law with retrospective effect and we are where we are today.
    Lets see which side the dice rolls.

  11. I.S.verma says:

    Pl, read ‘criteria to tax’ in place of ‘criteria tax’ in the first sentence of my comments. Error is highly regretted.

  12. Prabhat says:

    Judges taking the role of govt….Is it the role of judges to look at the aspects like foreign investment or jobs while delivering the judgement in a particular or look at it in its merits…….is it the way other cases are dealt!!!.

  13. I.S.verma says:

    If saving of the jobs/employment is taken as the criteria tax or not to tax an entity, then why to tax at all. Every entity/person earning income more than the amount required for his survival may be made to give, compulsorily, job/employment to some one as per the monitory conditions. This will not only save jobs, will avoid the legal battle and litigating expense which in turn will save more jobs/employment. Govt. should abolish all taxes- direct or indirect. Bravo! Let us enjoy a ‘Tax free regime!’

  14. Madhav says:

    I am surprised to see the argument of Hon’ble Kapadia. Frankly I didn’t expect such non-sense argument. To some extent everybody will accept that there should not be retrospective amendments. However, at the same time, is this argument of jobs is correct? If tomorrow some Indian company defaults tax and says that we are creating jobs – will they leave? Why MNC’s should get a preferable treatment? If strict laws will not attract MNC’s means – no MNC’s should invest in China which is not the case. Business persons will see only the profits. If tax law of India is complicated and harrasing, why Vodafone invested at all? Why telenor didn’t leave India despite of cancellation of licence, cheating of Unitech (what they claim?) – they are looking the business – all others will come 2nd place..

    Further, why Vodafone did not deduct tax? That too when Government alerted. When they don’t want why they have not applied for ‘no deduction certificate’ which statute is giving relief. They don’t want to Honour our tax law, but we want to honour them? Why Hutch should not pay tax for profits from Indian business? Why Vodafone has settled in Britain and not willing to pay in India?

    I have not expected such a useless argument from the Hon’ble Kapadia on whom I have great respects.

  15. Venkat says:

    Justice has rightly pointed that drafting of law was poor especially income tax 1961. It needs a major revamp of the language used. For instance in Sec. 40(a)(ia) the word payable was interepreted in different ways by the tribunal whereby it lead to absurdity…..

  16. Ramesh says:

    It has been proved by the tax department that Vodafone took the huge risk of going ahead with the buy without withholding the taxes knowingly, by ignoring the caution given by the department earlier. The result, Hutchison of Hong Kong walked away with $10 billion of income earned from Indian jurisdiction without paying a single rupee/dollar in taxes anywhere in the world. We, ordinary citizens of this country do not have this privilege! On every penny we earn, taxes have to be paid.

    British Govt too lobbied hard on behalf of Vodafone. But, Public Accounts Committee of British Legislature rapped MNCs like Amazon, Google and Starbucks for not paying due taxes in Britain, terming their tax avoidance as immoral, if not illegal. Google openly declared before them that they do this because they can. But, their legislature has not accepted this and is egging on their Revenue Agency to be bold and tough with these corporates. The citizens of Britain have boycotted Starbucks outlets over their tax avoidance scheme and that forced it to rework its tax strategy.

    Their rationale is if income arises from economic activity in that country, then taxes have to be paid there. If this rationale is applicable for Britain, then why not for India?

    Is it not better if the Judiciary in India confines itself to interpretation and application of law, leaving the aspects of FDI, economic growth, employment etc to the Executive?

  17. jitesh sonee says:

    The job of the present government is to collect anyhow and anyway and distribute in the present scenario of politics of entitlements.The government is after Vodafone only because of fund requireements and its likely collections without a hassle.The taxpayers should ponder over atleast 100 retrospective/revenue favourable amendments in the period 2008 to 2013 but alas we are talking nonstop about Vodafone from 28/02/2012.

  18. vishnu says:

    Who is absuing the law ? Vodafone and Hutch ? if that is true then who is behind this companies? Just think who can give such ideas to evade taxes or certify accounts to facilitate payment of lower taxes

  19. nobody says do not take taxes, you can take ethically else get lost that message went from president Mr. Obama and he took resignation from IRS ACTING CHIEF THE OTHER DAY, either work ethically or get lost is the message president game loud and clear why not our PM, may be controlled by PC but digvijay says PM controlscabinet govt and soniaji the organisation what is true as per you!

  20. SDave says:

    Be it an MNC or a local entity, is it not legitimate to plan one’s business transaction with in the purview of Law prevalent on the day of transaction? I think it is. So is the situation in present case. The detailed ruling by 3 learned judges does bring out the fact in above case that the transaction was not taxable in India and so there was no requirement to deduct tax at source. Why is the Dept. behind only entity which has not deducted tax at source? What about the entity which has supposedly earned income on which tax was required to be deducted at source, as is being argued by the Dept.? In a global atmosphere everyone needs everyone else. Let us all remember that no business entity is existing to do charity but is doing business since it wants to earn profits even a local entity.

  21. sunil mittal says:

    amendment with retrospective should not be done by the Govt. as such type of decisions make uncertainty in the environment .

  22. Tapas Ram Misra says:

    As a necessary corrective step, in my submission, the Supreme Court needs to take a tough stand and hold retrospective amendments to be valid only in exceptional circumstances. Taxes may be levied on such subjects and such rates as the elected representatives of the people may decide in the wisdom advised by the executive, but expanding a tax base retrospectively or creating legal provisions to tax a past transaction ought to be struck down as a rule, and allowed only in exceptional circumstances.

    Nearly fifteen years ago, a Japanese lawyer complained to me, that Indian lawyers never gave a ‘yes’ or ‘no’ kind of answer! I could not, despite my embarrassment, explain that our laws often leave a grey area and that the laws may be viewed by a tax payer and a tax collector in completely different ways.

    Another telling impact of retrospective amendment following Vodafone judgment was expressed by a taxpayer’s executive; “what is the point of engaging expensive lawyers and winning a case in the Supreme Court? It makes more sense to settle the matter at the ITO level!” Perhaps those who move such amendments are aware of this obvious consequence of making the highest court redundant, and that potential long term benefit of illegal gratification induces the numerous proposals for retrospective change in law.

  23. S K Barasia says:

    Justice Kapadia is very right and retrospective amendment and GAAR is only a big harassment to honest tax payers. The GAAR is such drafted that any thing for tax planning or tax avoidance shall be treated as tax evasion. Sorry for this corrupt govt which gives full right to officers to loot the public.

  24. Tapas Ram Misra says:

    In my humble opinion, the Government of India must act with maturity and learn to accept judgments of Supreme Court. Besides, the Government must also admit to itself that what is not on the statute, is not on the statute; instead of claiming that whatever catches the fancy of an ITO in some proceeding was always the intent of the legislature!

    The Parliament, on its part, must debate each proposal for a retrospective amendment and take the Finance Minister to task by demanding explanation as to why a retrospective effect is required and how did the existing law actually intend what is being suggested in the amendment. This had been done in the past, and it needs to be revived.

    As a taxpayer (not as a tax lawyer) I need to know that what I see written in the Income-tax act today is the law, and not what it may say ten years later via a retrospective amendment.

  25. alpa says:

    while framing laws govt. is not alert and preventive care is missing
    once grey matter is applied the govt. sulks
    acts like a kid bully and goes and amends the act
    that too with retrospective effect
    govt. please grow up!

  26. Sanjeev says:

    I fully agree with this view. These MNCs come to do business in India and route their transactions in such a way that they wilfully avoid taxes which they should othewise pay. After some time everyone will forget the Vodafone case and the money will gone forever. Then the govt will try to tax the Indian people to cover up.

  27. sad retrospective amendments need to be discouraged even by courts bu declaring such executive order as null and void and invalid.
    there shall be some certainty in any law and you cannot make it dance to your tunes of government in power.
    that way sec 138 was introduced in Negotiable instruments Act 1881 what is created?
    More problems and more legal exenses when the accused is meaninglessly hauled for several years besides bottlenecking magistrate courts that is other more or very important criminal cases, besides chocking the judiciary just to allow the reckless risk taking banks and financial institutions to go gung ho with more and more risks while due diligence to be done by banks/institutions are no longer due diligence but just harassing mechanism more compounded by SARFASI Act 2002.
    banks function very casually even on loans and advances they give. tell me if you do not know how the borrower will service the loan and if you sanction you take reckless risks but risks cannot be covered by criminal laws but just be civil laws which cases can go on ever but criminal laws certainly not . so govt need to realize to repeal sec 138 after all the holder in due course today has to know within 3 months you need to encash instruments earlier 6 months; again big loans cannot be serviced within 30 days of Notice unless another banker rescues; so before moving sec 138 you give renewed opportunity to drawer by depositing again after about a month after bouncing by mutual laying working out solutions with drawer. if you make drawer accused to appear ever meaningless hearing, meaningless because this man has no wherewithal to pay the demand and that means drawer can earn some moneys by his skills by being put to use, but if you stress him for long he will be just a straw and generate nothing while both sened irrational legal unproductive fees to the complainant and defendant. So ideal courts shall have power to tell the complainant go for meaningful settlements without harassing each other in already filed complaints and thus courts can get some time space for adjudicating other criminal matters; better sec 138 is made a civil matter that will make banks use their due diligence more meaningfully is my view.
    similarly tax man today really not well versed in interpretation of statutes and so his great interpretation free wheeling bring disaster after disasters, as cji retd SHK said about jobs getting affected if vodofone is harassed;
    today i read gujarat high ourt correctly told cooperative banks cannot resort to DRT or use SARFASI Acts as these Acts cut into state list of functions besides multi state coop soc acts are essentially fit to be set aside for cop banks of one state meandering in another state in fact affecting the state lists. constitution clearly laid three lists that necessarily be honored and do not allow parliament interfere in the lists wi be sane approach.
    coming back to vodofone, accept earlier SC verdict and if not SC suo motu under judicial review set aside retrospective amendment proposition by parliament. in this connection one need to appreciate what president mr. obama did by taking resignation of acting IRS chief the other day as IRS WORKED unethically against citizens and such dispensations are over due in India please. so clip arbitrary powers exercised by executive by jittery moves !

  28. RT says:

    I don’t think anything else can be the reasons for letting anyone to escape law, no matter even if it is an MNC. Before law, the consideration has to be only whether right or wrong. If wrong is committed, punishemnt/penalty has to be follow, no excuse because of emplyment or investment. If allowed reasons/explantions/justifiiications will be countless.

  29. Shri Kapadia rightly said that the way in which laws are drafted in India is completely unacceptable. Th example he quoted completely fits into present case. Govt. has brought in retrospective clarificatory amendments to tax vodafone. My question is why not in first place govt drafted the law as it stood today. This would have avoided chances of litigation and ambiguity.

  30. Sarosh Irani says:

    Please some Judge pass a judgement that the Income Tax Department / Sales Tax Department / Excise & Customs Department / Municipal Corporation etc, etc should stop collecting taxes from Indian businesses. Because if you collect taxes that are rightfully due then Indians will stop working and if that be the case then millions of Indians will lose their source of livelihood.

    This is absolute nonsense. Why should we let a foreign MNC go without payment of the rightful taxes? If Vodafone wants to exit India they can do so. Frankly I do not care and most of the people who lose their jobs will get jobs again. The important question is ” WILL VODAFONE LEAVE INDIA ? “. Absolutely NOT. This is one of their fastest growing markets and remember, they make profits here and that is why they are in India. So please, to all MNC’s, you are welcome to India to do business and make money. BUT REMEMBER YOU BETTER PAY YOUR TAXES.

    I respectfully submit that even though in some cases the taxpayer may be victimized, in the case of Vodafone they were surely not. One birdie tells me, that the Income Tax Department informed Vodafone that tax was due and asked them to submit documents which they refused to part with prior to the payment to Hutch. All Vodafone had to do was withhold the tax from the payment to Hutch. If you act cocky, I am sure the law will catch up with you. We all seem to forget that Vodafone is facing similar moral tax issues in the United Kingdom (Why aren’t they a UK based company???) Sigh…


    Rightly said. Drafting of laws should be crystal clear with no scope of ambiguity and should leave no room for subjectivity. Moreover, it should not allow for its abuse in the garb of achieving the revenue targets.

  32. For once I agree with the Government. It was a clear abuse of law by Vodafone and Hutch. And how have extraneous factors like saving thousands of job come into the picture while giving judgments. Do we not keep on repeating ‘Tax and equity are complete strangers’? Then how does this come into picture. And if this is the case, will it be applied in all cases. Tomorrow will all big corporates and industries expect the same treatment? With due respect, this is an utterly illogical and non sensical arguement advances by Mr. Kapadia.

  33. CA SANDEEP JAIN says:

    Retrospective chages in law to nullify the apex court judgement not to be carried out. Such type of measures leads to discourage foreign investors.

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