A public interest litigation (PIL) has been filed in the Supreme Court to restrain the government from going ahead with arbitration proceedings with UK-based mobile major Vodafone.

Vodafone Group has already begun an international arbitration against the Indian government in the more than Rs. 20,000 crore tax case. The Indian government has appointed former Chief Justice of India RC Lahoti as arbitrator in the tax dispute.

The PIL, filed by former additional solicitor general Biswajit Bhattacharya, wants the government to recover dues from Vodafone, challenging that "allowing arbitration would lead to violation of rule of tax laws".

The arbitration stems from a tax dispute over Vodafone's acquisition of Hutchison Whampoa's Indian assets in 2007. The government has maintained that the transaction is taxable because it involves Indian assets. Vodafone says Indian tax laws don't apply as the transaction occurred between two overseas companies.

In 2012, the Supreme Court ruled that Vodafone was not liable to pay taxes on its acquisition. Later that year, the government changed rules to enable it to tax deals that had already been concluded.

The government's initial tax demand of Rs. 7,990 crore in 2007 has now risen to nearly Rs. 20,000 crore because of interests and penalty.

Uncertainties over tax policy in India have unsettled investors, and tax claims on foreign companies have been a major concern. IBM Corp, Royal Dutch Shell Plc and Nokia are among foreign firms contesting local tax claims.

The UPA government had approved conciliation with Vodafone last year, but the latter responded with an arbitration notice forcing the government to withdraw its offer.  NDTV (With Agency Inputs)