Engaged in tax dispute with the Indian government, British telecom operator Vodafone on Tuesday served the Centre with a ‘Notice of Dispute' regarding proposals in the Finance Bill 2012 that proposes tax on international deals with retrospective affect.

Alleging that the Finance Bill 2012 violates the international legal protections granted to Vodafone and other international investors in India, Vodafone said its Dutch subsidiary -- Vodafone International Holdings BV (VIHBV) – has served the notice, which is “the first step required prior to the commencement of international arbitration under the Bilateral Investment Treaty (BIT) between India and the Netherlands”.

In a regulatory filing to the London Stock Exchange, Vodafone has asked the Indian government to abandon or suitably amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution to this matter. “However, if the Indian government is not willing to do so, Vodafone will take whatever steps are necessary to protect its shareholders' interest, including investment treaty arbitration proceedings under the BIT against the Indian government,” Vodafone said in a statement.

Under the BIT, the Indian Government is obliged, amongst other things, to accord fair and equitable treatment to investors; provide full protection and security; not breach the legitimate expectations of investors in making investments; not deny justice or breach previously provided assurances; and not take steps to indirectly expropriate the investment.

“Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government's obligations under the BIT to accord fair and equitable treatment to investors,” it said. “The Indian government's retrospective tax proposals have also raised significant and widespread concern within India and internationally and have been criticised by businesses and industry bodies representing more than 2.5-lakh companies across the US, Europe and Asia,” it added.

After losing the legal battle with Vodafone in the Supreme Court over taxing its deal for buying Hutchinson's share on erstwhile Hutchinson-Essar in 2007, Finance Minister Pranab Mukherjee has proposed to amend the Income Tax Act so that such deals could be taxed from retrospective effect. The Centre had asked Vodafone to pay Rs.11,000 crore in taxes.