This article is more than 2 years old.

November 19, 2014 This article is more than 2 years old.

The Indian unit of Royal Dutch Shell has just won a billion dollar dispute against the taxman at the Bombay High Court—and that’s good news for Narendra Modi’s government.

In February last year, India’s tax authorities had alleged that Shell’s Indian arm had under-priced 870 million shares that it transferred to the parent company. These had been issued in 2009 at Rs10 ($.16) per share, but the tax department disagreed with the valuation, instead pegging their worth at Rs183 ($3) for each share.

That gave rise to a $1.4 billion (Rs 8,656.55 crore) tax dispute, making this the largest ever claim in a tax case related to transfer pricing in India.

On Nov. 19, the Bombay High Court ruled against the tax department because, in its view, shares issued by an Indian firm to its overseas parent company are not taxable under transfer pricing provisions.

“In this situation, the court felt that the tax department had clearly exceeded its jurisdiction to bring to tax a capital transaction,” Shell’s lawyer, Mahesh Bhutani, said. The government still has 90 days to appeal at the Supreme Court.

A clutch of multinationals—including IBM, Bharti Airtel, HSBC Securities and Essar and AT&T—have found themselves embroiled in tax disputes in India. Perhaps the most prominent of these was Vodafone, India’s biggest foreign investor, which won a $490 million tax dispute last month.

Shell’s victory, together with the Vodafone verdict, may help signal to foreign investors that India’s days of “tax terrorism”—the prime minister’s description of an aggressive taxman targeting businesses—are now over.

“This is an important ruling and very good news. It is likely to help many other companies, as well as boost India’s reputation abroad,” Dinesh Kanabar, CEO of Dhruva Tax Advisors told the Financial Times (paywall).

Meanwhile, prime minister Modi has also been making a strong pitch to international firms to manufacture in India. But this has been somewhat muddied because of the taxation-related closure of Nokia’s manufacturing unit in Chennai shortly after the “Make in India” campaign was launched.

With Shell’s recent verdict, it might just become a little easier for Modi to woo big multinationals to invest in India—unless his government now takes the fight to the Supreme Court.