The Central Board of Indirect Taxes and Customs (CBIC) is looking into whether the transaction, which took place more than a year ago, falls under the ambit of GST
The Central Board of Indirect Taxes and Customs (CBIC) is looking into whether the transaction, which took place more than a year ago, falls under the ambit of GST, sources told the paper.
The tax liability of the transaction could fall on the Tata Group since NTT Docomo is a foreign entity, the newspaper quoted sources as saying.
The tax department reportedly started investigating this transaction after getting an approval to do so from Finance Secretary Hasmukh Adhia earlier this year.
The department is yet to serve Tata Sons with a notice because the probe report hasn’t been finalised, the daily reported.
Cases involving transaction of shares or award of arbitration amount to a foreign company by a domestic one have so far been treated exclusively under the direct tax provisions.
In this case, however, the income tax department believes a joint approach agreed upon by the joint venture partners to make sure the arbitral award is enforced is what brought the transactions under GST.
Tata Sons reportedly paid the arbitration amount to Docomo so that the latter would not be able to get any Tata Group assets in Tata Teleservices, and so that it withdraws all the other enforcement actions elsewhere.
According to the GST Act, ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act..’ in lieu of payment would be considered as a supply of services.
The concept of forbearance was introduced in the service tax regime in 2012. So there is almost no precedent of such a case in domestic law.
DoCoMo had in November 2009 acquired 26.5 percent stake in Tata Teleservices for about Rs 12,740 crore(at Rs 117 per share).
This was according to a 2008 understanding that in case it exits the venture within five years, it will be paid a minimum of 50 percent of the acquisition price.
In April 2014, DoCoMo decided to exit the joint venture. It sought Rs 58 per share or Rs 7,200 crore from the Tatas.
But the Indian Group offered only Rs 23.34 a share, in line with RBI guidelines, which state that an international company can only exit its investment at a valuation “not exceeding that arrived at on the basis of return on equity”.
The Japanese company then had dragged the Tatas to international arbitration where it had won a $1.18 billion award.
The company had also filed a plea in the Delhi High Court seeking enforcement of the arbitration ruling.
The Delhi High court ruled in favour of DoCoMo, clearing the decks for the Tatas to pay the sum.
After the payment, all shares in Tata Teleservices held by DoCoMo were transferred to Tata Sons and companies designated by Tata Sons.