The Centre has decided to withdraw its conciliation proposal to telecom giant Vodafone over a Rs 20,000- crore tax dispute. This means that the tax department will now move to collect the dues from the company.

The Ministry of Finance has floated a Cabinet note seeking to withdraw the conciliation process with Vodafone International Holdings BV, sources said.

The Cabinet had in June last year approved the ministry's proposal to go in for conciliation with Vodafone to resolve the capital gains tax dispute related to its acquisition of Hutchison Whampoa's stake in Hutchison Essar in 2007.

Sources said talks collapsed because the company dilly-dallied on fine print. Vodafone, they said, wanted to club a Rs 3,700 crore transfer-pricing case of Vodafone India Services with the capital gains tax issue, a demand that the Finance Ministry did not accept.

While the basic tax demand for the 2007 acquisition is Rs 7,990 crore, the outstanding dues, including a penalty and accrued interest, make it a Rs 20,000 crore bill.

The revenue department, sources said, will now move to recover the entire amount.

The I-T department had kept its tax notice to Vodafone in abeyance following the Cabinet decision to resolve the tax dispute through non-binding conciliation talks.

The Cabinet is now likely to take up the case soon again as the law ministry has concurred with the Finance Ministry's proposal to withdraw from conciliation.

"The I-T department may proceed as per the provisions of the Income Tax Act to collect the outstanding demand from the company," the law ministry said in its comment on the new Cabinet note.

Vodafone declined to comment on the issue.