Vodafone to invest $500 Million for 3G and contest $2.5 Billion tax case

Vodafone Essar has been embroiled in a hefty tax case with the tax authorities in India. Resulting from Vodafone’s acquisition of Hutchison’s stake in the company pegged at around $11 Billion. The deal led to a show cause notice from the government claiming that Vodafone owes taxes of up to Rs 11, 218 crore INR ($2.5 Billion).

An official from the I-T department said, “IT department 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 as required before making a payment of $11,076 million (about Rs 55,000 crore) to Hutchison Telecommunication International Ltd."

According to Vodafone since the said deal transactions happened outside India, they don’t exactly owe as much in tax. In a statement issued by the company they said, "Vodafone strongly disagrees with the tax calculation. 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 recognized tax norms."

On September 8th however, the Bombay High court ruled that the tax demand has basis at the same time Vodafone can give their side of the story. Vodafone Essar decided to appeal this judgment in the Supreme Court who did not issue a stay on the High Court’s ruling. The case was supposed to come for hearing in the Supreme Court today but Vodafone’s lawyers have asked for time pushing the hearing to November 15th.

While the legal department of Vodafone finds ways to figure out the tax mess, Vodafone plans to invest around $500 Million for 3G equipment in India. Ericsson and Nokia Siemens have been brought on board to setup the infrastructure. Aircel is expected to spend a similar amount. Vodafone’s 3G service will start early 2011. Marten Pieters, MD Vodafone Essar demonstrated the 3G service by making a video call between Mumbai and Delhi,  two cities expected to be the first to see the service.