New Delhi, June 15: Vedanta group chairman Anil Agarwal today met finance minister Arun Jaitley and other officials to discuss Cairn India's $3.2-billion tax liability.

The boards of Vedanta and Cairn had yesterday approved their merger in a $2.3 billion all-stock deal that gives debt-laden Vedanta access to cash-rich Cairn's huge reserves but saddles it with the tax liability.

"We have discussed Cairn tax demand issue with the government. At the time of the Cairn deal, there was no requirement of withholding tax," Agarwal told reporters after the meeting, which was also attended by revenue secretary Shaktikanta Das.

"Cairn tax demand is sub judice now and has been factored into the merger," Das said.

Tax authorities in March had slapped a claim of Rs 20,495 crore on Cairn, charging it for failing to deduct withholding tax on alleged capital gains made by its erstwhile promoter Cairn Energy.

Cairn India, which is 60-per-cent owned by Vedanta, has challenged the tax demand in the Delhi high court.

Moody's Investor Service said the tax demand on Cairn India would be a liability for the metal and mining company.

"Debt reduction following the merger will reduce rating pressure, although the merger increases the risk that Vedanta will ultimately be held accountable for Cairn India's $3.2-billion tax liability," it said.

"The merger will provide Vedanta better access to Cairn India and its subsidiaries' current large cash balances of $2.9 billion and future cash surpluses as previous access was only possible through up-streaming of dividends," said Kaustubh Chaubal, vice-president and senior analyst at Moody's.

Edinburgh-based Cairn Energy and state-owned insurer LIC hold the key to Agarwal's move to absorb Cairn India into Vedanta.

Cairn Energy and the LIC are the largest minority shareholders of Cairn India. The merger needs the approval of at least half of the minority shareholders.

Cairn Energy, which in 2011 sold a majority stake in Cairn India to Vedanta for $8.67 billion, still holds 9.82 per cent in the company. The LIC has 9.06 per cent and the deal will collapse if the two decide to vote against the merger.

Credit Suisse Group AG said the merger would need approval of the income tax authorities.

"Cairn UK and LIC are unlikely to oppose Cairn UK, keen to monetise its stake, may find it easier with more liquid Vedanta stock," Credit Suisse said in a research report.