The government on Friday asked Vodafone to pay Rs 11,218 crore in taxes within a month, for the acquisition of Hutchison's stake in the telecom joint venture in India in 2007.
"The IT department on Friday issued an order raising a tax demand of Rs 11,217.95 crore on Vodafone International holdings BV, treating it as an assessee in default...for failure to deduct tax required before making a payment of $11,076 million (about Rs 55,000 crore) to Hutchison Telecommunication International Ltd," an official statement said.
The notice was issued following the Supreme Court directive on September 27 to the IT assessing officer to determine and quantify the tax liability of Vodafone within four weeks.
Vodafone had bought majority stake owned by Hutchison in the Hutchison-Essar joint venture offering mobile services in India.
Vodafone Essar, however, contested the tax notice. "Vodafone strongly disagrees with the tax calculation released by the Indian Tax office to the media today," the company's spokesperson said in a statement.
"Vodafone continues to believe it is not liable for any tax on this transaction involving the transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction," the spokesperson said.
The case relates to a deal in 2007 when Vodafone, through its group firm Vodafone International Holdings, bought Hutchison Telecommunications India's (HTIL) 67 per cent stake in Hutchison Essar for over $11 billion.
"The tax demand has been raised in pursuance to the direction of the Supreme Court of India dated September 27 to the Income Tax Assessing officer to determine and quantify the tax liability of Vodafone within four weeks," the official statement said.
Last month, the Supreme Court had refused to stay a high court order, which has ruled that Indian income tax authorities have jurisdiction to tax Vodafone on its deal with Hutch.
The apex court has scheduled the next hearing on the matter on October 25. In the order, liberty was given to the petitioner (Vodafone) to approach the court for an appropriate remedy.
In Mumbai, Central Board of Direct Taxes Chairman S S N Moorthy said its tax dispute with Vodafone has not impacted foreign fund inflows as the country has received higher money from overseas.
"The issue (Vodafone tax liability) has not impacted foreign funds inflow," Moorthy told reporters on the sidelines of an event here.
Moorthy's assertion came in the wake of a section of India Inc voicing apprehensions that the huge tax liability raised against Vodafone could discourage multi-nationals from investing in India.
India has witnessed higher foreign funds inflow, particularly FIIs funds in stock markets. They have poured in record over Rs 1 trillion in stock markets this year so far.