India's tax office has sent Vodafone a reminder to pay $2 billion in taxes and threatened the UK group with seizure of local assets if it fails to do so, despite the dispute being the subject of an international arbitration process.
Vodafone, one of India's largest corporate investors, has been involved in a string of tax disputes in India since it bought in 2007 Hutchison's local mobile business to enter into the world's second-biggest market for mobile phone users.
In the long-running dispute, the telecoms group was held liable for paying capital gains tax on the deal, for which the reminder notice by the Indian tax office has been sent.
The development comes even as Prime Minister Narendra Modi's government has sought to move towards a tax-friendly regime to boost foreign investment and reduce the number of outstanding tax disputes with multinational firms.
"We can confirm that we have received a tax reminder from the tax department that also references asset seizures in the event of non-payment," a London-based spokesman for Vodafone said in a statement.
"In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors this seems a complete disconnect between government and the tax department," the Vodafone statement said.
Indian revenue secretary Hasmukh Adhia said in social media posts that the tax office's notice to Vodafone was a routine exercise of sending notices in cases where collection of dues was not 'stayed', or temporarily put on hold, by any court.
"The party can always approach assessing office with a request to stay the demand as per law," Adhia said in posts on his official Twitter account late on Tuesday. "In case assessing officer does not agree, party can go to next higher authority and get a stay."
In 2012, India's Supreme Court ruled that Vodafone was not liable for any tax on the Hutchison deal, but the government then changed the law later that year to enable it to tax such deals retrospectively, demanding more than $2 billion be paid.
In 2014 Vodafone then sought international arbitration of the dispute, which has still not been settled.
A number of other multinational companies including Royal Dutch Shell Plc, IBM Corp, Microsoft Corp and Hewlett-Packard Co have fallen foul of India's tax collectors in recent years.
In most of the cases the tax department has charged the firms with under-invoicing the value of products, services or shares sold to their parents and, therefore, lowering tax liabilities.