Notices can be issued by tax authorities for various reasons. One such reason can be to effect recovery. This is what Vodafone is facing lately, even when the matter is before arbitration. The moot question, hence, would be - can the department issue a recovery notice, when the dispute is pending before an arbitration panel? The legal answer to this would be a certain 'yes'.

Once a tax has been determined by revenue authorities as 'payable', it can be recovered, even coercively. The pendency of the case, even before the high court or Supreme Court, does not prevent the recovery of tax. The only remedy is to get the recovery 'stayed' by a court.

It is noteworthy that the Income-tax Act does not provide for any arbitration on tax matters. International arbitrations are generally invoked to protect investments running in astronomical figures - as is the case with Vodafone, which has resorted to the India-Netherlands Bilateral Investment Treaty. This arbitration certainly does not put a legal bar on recovery.

Thus, given that the tax notice is legally correct, and the pendency of the matter for arbitration does not prohibit recovery, here is the larger question. As a matter of propriety, whether the government should have hastened such recovery? The answer would be a definite 'no'. The Income-tax Act does not lay down any timeline for recovery. It is an administrative action and due to various reasons the recovery might be delayed. In other words, it would not be illegal to delay tax recovery, and the fact that the case is pending for arbitration can well be a reason to stall the recovery proceedings.

Besides retrospective amendments, Finance Act 2012 had gone a step further and enacted a validation clause (section 119).

The clause sought to nullify the judgment of the Supreme Court by upholding the previous tax demands raised. The department is well within its rights to enforce the retrospective amendments, applying the validating clause.