India / Vodafone Idea wins tax refund case, SC orders I-T Department to refund ₹833 cr

New Delhi: The Supreme Court on Wednesday dismissed a petition filed by the income tax department challenging a lower court’s order asking it to refund ₹833 crore to Vodafone Idea Ltd.

The Bombay High Court in June had ordered the tax department to refund the said amount to the telco for the 2014-15 assessment year, in which the income earned in the previous fiscal is assessed.

Vodafone Idea should get the refund immediately as the top court did not stay the Bombay High Court order directing to process the amount within two weeks, said Prashant Meharchandani, senior associate at PDS Legal. The high court order was passed on 26 June.

“Since the top court has dismissed the plea, the refund should be given along with the applicable interest for delayed refund as per the (Income Tax) Act," Meharchandani added.

The income tax assessing officer had passed a rectified refund order on 28 May after deducting ₹176.39 crore as pending dues and settling at ₹833 crore as net refund to Vodafone Idea.

However, the income tax department withheld the refund claiming that massive outstanding dues for other assessment years were pending. This was challenged by Vodafone Idea at the Bombay High Court, which said refunds cannot be withheld against undetermined future demands.

The Supreme Court move comes as a big relief for cash-strapped Vodafone Idea that is struggling to pay its adjusted gross revenue (AGR) related dues to the department of telecommunications (DoT) amid declining subscribers base and shrinking revenues.

The DoT estimated Vodafone Idea’s AGR dues at ₹58,254 crore, of which the telco has so far paid ₹7,854 crore. The operator still owes ₹50,400 crore to the government. While the telco has requested for a 15-year period to clear the remaining dues, the SC has reserved its order on the timeline of staggered payment.

"With this dismissal of revenue's (department) SLP (special leave petition) against Bombay HC judgment, revenue will have to process the income tax refund and pay ₹833 crore to Vodafone Idea, which was earlier denied in anticipation of future tax demands," said Sumit Mangal, partner at L&L Partners.

This refund should provide some liquidity to the telco to pay its AGR dues, Mangal added.

After completing their merger in August 2018, Vodafone Idea had become India’s largest telecom company with 408 million active subscribers. However, the telco’s active subscriber base has fallen significantly to 294 million as of March 2020, with a market share of 27.57%, behind Bharti Airtel’s Ltd 28.31% and leader Reliance Jio Infocomm Ltd’s 33.47% share.

The continuous drop in Vodafone Idea’s subscriber base has got analysts worried, who estimate that the telco has to more than double its average revenue per user (Arpu) to meet its AGR payment target in 15 years, if allowed by the Supreme Court. Vodafone Idea's Arpu in the quarter ended March was at ₹121.