New Delhi, Oct. 22: The government today asked Vodafone to pay Rs 11,218 crore in taxes within a month for the acquisition of Hutchison’s stake in a telecom joint venture in India in 2007, a claim contested by the telecom firm.

The final tax claim includes Rs 7,000 crore in capital gains related to Vodafone’s $11-billion deal with Hutchison and Rs 4,000 crore in interest payments, said I-T officials.

Disagreeing with the tax calculations, Vodafone said, “The company continues to believe that it is not liable to pay any tax on this transaction involving the transfer of a company outside India.”

On September 27, the Supreme Court issued notices to the tax authorities directing them to decide within four weeks Vodafone’s liabilities.

Vodafone’s appeal challenging a lower court ruling that Indian tax authorities had jurisdiction over tax bills in cross-border deals will come up for hearing in the Supreme Court on Monday.

Industry experts said the Supreme Court might ask Vodafone to deposit a portion of the liability pending the disposal of the case.

The tax authorities contend that the Vodafone deal was liable to be taxed for capital gains as the assets of the acquired company were based primarily in India.

Vodafone, however, maintains that it does not have a tax liability and “would take necessary action to defend its position” even as it withheld a sum of $352 million from the $11.08-billion buyout deal it struck with HTIL as a way to indemnify itself against future tax claims.

The $352-million tax shield was built into the deal, indicating that Vodafone was aware that it could take no chances with the Indian tax authorities and needed to protect itself even as it aggressively argued in courts that it wasn’t liable to pay the tax since the share transfer deal had been struck outside India.

The CBDT today said, “The income tax department issued an order raising a tax demand of Rs 11,217.95 crore on Vodafone International Holdings, treating it as an assessee in default under section 201(1) of the Income Tax Act, 1961 for failure to deduct tax as required under section 195 of the act before making a payment of $11,076 million to Hutchison Telecommunications International Limited.”

“Vodafone strongly disagrees with the tax calculation. Vodafone was the acquirer and not the vendor and has made no gain on the transaction,” the company said in a statement on Friday.

“The tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms,” the statement said.

The roots of the case go back to May 2007 when Vodafone bought Hutchison’s 66.98 per cent stake in Hutchison Essar for $11.2 billion.

Hutchison controlled its Indian telecom subsidiary through a Cayman Islands firm called CGP.

CGP’s shares were sold to Vodafone, which consequently became a majority owner of the Indian telecom firm.

Vodafone’s contention all along has been that the existing Indian law does not give Indian tax authorities jurisdiction over an overseas transfer of the kind it did. The tax authorities have, however, disputed the contention and say Vodafone should have deducted tax at source before paying Hutchison.

The case is being closely watched by foreign companies that fear it will set a precedent that could make them liable for retrospective changes under Indian tax law.

The I-T department has said that Vodafone-like deals are being probed to ensure the government does not lose its legitimate revenues.

Similar demands have been made from breweries giant SABMiller, GE, and AT&T for their acquisitions in India over the past few years.

Meanwhile in Mumbai, CBDT chairman S.S.N. Moorthy said the tax dispute with Vodafone had not impacted foreign fund inflows as the country had received higher money from overseas firms.