Vodafone, which is currently disputing a USD 2 billion tax demand on its 2007 acquisition of Hutch-Essar, has paid INR 39 billion in tax in India on another transaction with the Mumbai-based Essar group, reports The Economic Times. The payment is for Vodafone's purchase in March of the 33 percent held by Essar in Indian mobile operator Vodafone Essar for USD 5.4 billion. Tax authorities in Mumbai confirmed the payment, adding that it was made "under protest". Both parties, Essar and Vodafone, believe that they do not have to pay any tax in India on the transaction. The company did not deduct tax and claimed an exemption on the grounds that it is an international transaction. But the Indian tax department vigorously contested the case and the Bombay high court last year ruled against Vodafone. Vodafone appealed to the Supreme Court. The case is keenly watched by the global tax regime, largely because of the size of the demand and the implications for cross-border deals if Vodafone loses the case. An Essar source said that in case the tax dispute is finally resolved in favour of the companies, the amount paid to the tax department would go to the Essar group.
