India Friday sent a INR112.18 billion ($2.52 billion) tax demand to Vodafone International Holdings B.V.–owned by the U.K.’s Vodafone Group PLC.–on its 2007 acquisition of a majority stake in India’s Hutchison Essar Ltd., the latest step in a tussle that has run for nearly three years. “The tax demand is to be paid within 30 days of the receipt of the notice of demand,” the central board of direct taxes, under the federal finance ministry, said in a statement. Capital gains on the transaction totaled INR374.14 billion, the central board of direct taxes, or CBDT, said. The tax on the gains was calculated at INR79.00 billion as of Feb. 11, 2007, CBDT said, adding that the balance is interest of INR33.18 billion on the tax amount from May 8, 2007. Vodafone said it “strongly disagrees” with the tax calculation. “Vodafone continues to believe that it is not liable for any tax on this transaction involving the transfer of a company outside of India,” the telecom company said in a statement.”Vodafone was the acquirer and not the vendor and has made no gain on the transaction.” The case is being closely followed globally and could have far-reaching implications for how foreign companies view investing in India. Some experts say if Vodafone is made to pay the tax, multinational companies could be discouraged from pursuing big-ticket deals in India. India’s tax department is seeking tax from Vodafone International, saying it failed to withhold tax while paying $11.2 billion to buy Hong Kong-based Hutchison Whampoa Ltd.’s 67% stake in Indian telecommunications operator Hutchison Essar Ltd. Hutchison Essar was renamed Vodafone Essar after the stake transfer. Vodafone has since claimed that India can’t seek tax as the transaction was executed out side the country by two foreign companies. The Bombay High Court on Sept. 8 ruled that local authorities have the right to seek tax, but said the company can argue before the tax department whether or not it needs to pay any tax in India. Vodafone appealed to the Supreme Court, but the court on Sept. 27 refused to stay the Bombay High Court’s ruling and asked the authorities to determine the potential tax liability by Oct. 25. In Friday’s statement, CBDT said it has treated Vodafone International Holdings as an assessee failing to withhold tax on the transaction, and sent the notice following the Supreme Court’s direction to determine and quantify the tax liability of Vodafone within four weeks. “This (tax) calculation, as well as any appropriate stay of payment, will be reviewed when the matter comes before The Supreme Court on October 25,” Vodafone said. Vodafone filed a separate petition in the Bombay High Court on Oct. 15, appealing against the move by Indian authorities to treat it as an agent of the seller of the stake, Hutchison Whampoa. A person familiar with the development, who declined to be named, said the tax department changed tack–from charging Vodafone for not withholding tax to instead treating it as an agent of Hutchison–in an effort to pursue an alternative means of taxing Vodafone, rather than increasing the company’s tax liability. “In any event, Vodafone also believes the tax calculation released by the Indian Tax Office today is unfounded as it has failed to follow the conclusions of the recent Bombay High Court judgment,” Vodafone said in its latest statement. The Bombay High Court is due to hear Vodafone’s petition on Oct. 27.