India has challenged in a Singapore court an international tribunal verdict that overturned its Rs 22,000-crore tax claim on Vodafone Group Plc, sources said.

The Centre has challenged the arbitration award on the sovereign right to levy tax and not on the tax demand per se, the sources added.

All the signs indicate that the Centre is preparing to adopt a similar approach in the Cairn Energy case, too, where the verdict has gone against the country.

Shares of Vodafone Idea fell 5.87 per cent to Rs 9.94 against previous close of Rs 9.56 on the BSE.

On September 25, an international arbitration court had rejected the Indian revenue authorities’ demand of Rs 22,100 crore in back taxes and penalties relating to the British telecom giant’s 2007 acquisition of the mobile phone operations of Hutchison Whampoa. India had 90 days to file an appeal against the tribunal award, and the same was done in a Singapore court earlier this week.

Sources said the appeal against the arbitration was on the ground that “India has a right to tax and no one can take this sovereign right from India. This will definitely have an impact on the Cairn tax issue”.

The decision to challenge the verdict came after deliberations within the government at the highest levels.

Sources said the government was in favour of a uniform approach in both the Cairn and Vodafone cases. While the Cairn award was a significant hit on the government’s finances; not appealing against the Vodafone case would have set a precedent.

On Wednesday, the same arbitration court in The Hague had asked the government to pay Cairn Energy $1.2 billion in damages relating to a tax demand against the British company.

India has been asked to pay with interest the value of shares it sold, the dividend it seized, and tax refunds it withheld to recover part of tax demand from the British firm. The government, the sources said, is expected to challenge this ruling too given the size of the award.

Both Vodafone and Cairn had challenged the tax demands under bilateral investment protection treaties and initiated the arbitration.

Sources said the government believes that taxation is not covered under investment protection treaties with various countries and the law on taxation is a sovereign right of the country.

While the treaties between the countries are primarily aimed at the protection of investments, the tax is levied on “returns” earned by entities.

In the case of Vodafone, the tribunal ruled the Centre’s imposition of a tax liability was in breach of the investment treaty agreement between India and the Netherlands.

The government has to reimburse Vodafone 60 per cent of its legal costs and half of
the euro 6,000-cost borne by Vodafone to appoint an arbitrator on the panel. Sources said the government of India’s liability came to Rs 85 crore in legal cost.

Vodafone had challenged before the arbitration tribunal the demand for Rs 7,990 crore in capital gains taxes, which rose to Rs 22,100 crore after including interest and penalty under the Netherlands-India Bilateral Investment Treaty.

The demand related to Vodafone’s $11-billion acquisition of a 67 per cent stake in the mobile phone business owned by Hutchison Whampoa in 2007.

The revenue authorities felt the deal was designed to avoid capital gain tax in India and imposed a tax demand, which was rejected by the Supreme Court in 2012. To stop abuse and plug the loophole of such indirect transfer of Indian assets, the government in 2012 amended the law to make such transfers taxable in India, they said, adding Vodafone was slapped with a fresh demand which the firm contested through international arbitration.