Indian tax authorities smacked $2.5 billion of tax on Vodafone last October over its purchase of stake which happened in 2007. Vodafone has consistently opposed this, claiming the deal doesn"t come under Indian tax jurisdiction.
The case is in the custody of three-judge bench headed Chief Justice S H Kapadia, Justice K S Panicker Radhakrishnan and Justice Swatanter Kumar. Vodafone representative and senior advocate Harish Salve claimed before the judges that transaction between two foreign companies -- Vodafone International Holding BV and Hutchison Communication International Ltd -- had happened outside India, hence the Income tax department cannot impose capital gain tax.
"Both the companies are foreigners and the transaction happened outside the country so the overseas transaction cannot be taxed" Salve said.
Vodafone also mentioned it was the purchaser and not the seller and made no gain on the transaction.
The case is being closely watched by the foreign investors and same could impact further foreign investments in India say experts.
The company had earlier fought the case in Mumbai High Court which was ruled out in favour of I-T department, following which Vodafone moved to Supreme Court last year.
The case was scheduled to start in the Supreme Court of India on July 19, but has been delayed and is expected to run for a few months as it is unclear how many days the court will sit, say experts.
The company had already invested $23 billion in the country, including $12 billion for acquisition of the 67 per cent stake of Hutchison, and would now pay $5 billion to Essar for buying its stake. Besides, it has invested an additional $6 billion to roll out operations and acquire spectrum in the last four years.
The global telecom major, which is present in about 30 countries across the world, has recently added India to its portfolio, beside the US and Europe. These tax issues may impact Vodafone's further investments in India until they get clarity on issues such as spectrum and tax.