New Delhi/Mumbai, Apr 18 (IANS): Britain-based global telecom company Vodafone Tuesday served notice on the Indian government on its retrospective proposal to levy capital gain tax on a transaction that led to its buying equity in an Indian phone firm in 2007.

The Prime Minister's Office was among those served the notice of dispute on the proposal in the Finance Bill, 2012, contending its retrospective nature violated international legal protections granted to international investors, a company spokesperson said.

The notice has been served by Vodafone's Dutch subsidiary and is the first step required prior to commencement of international arbitration under the Bilateral Investment Treaty (BIT) between India and the Netherlands.

The company said Prime Minister Manmohan Singh had even written a letter to his British counterpart Gordon Brown in February, 2010 assuring Vodafone will have full protection of law and there would be no retrospective application of taxation.

The notices were also served on the offices of the Finance Minister, Law and Justice and Communications and IT.

Claiming the bill violates international protections granted to international investors, Vodafone has also urged the Indian government to drop the retrospective effect of the proposed legislation.

Vodafone has also expressed its willingness to meet with government officials to explain its position and reach an amicable solution to the issue.

But if the government refused to meet the requirement or withdraw the proposed bill, the company has warned of appropriate steps, including commencement of arbitration under the investment treaty in a bid to protect its shareholders' interests.

The Income Tax Department had asked Vodafone Holdings to pay Rs.11,000 crore in tax as a result of its acquiring majority shares in Hutchinson-Essar in 2007 in a deal executed overseas. The Supreme Court had later set aside this demand.

In the budget proposal, the finance ministry sought to bring the deal under the tax ambit by proposing a retrospective effect to a relevant clause.

Vodafone said that under the treaty the Indian government is liable to accord fair and equitable treatment to investors, provide security, not breach the legitimate expectations of investors in making investments and not deny justice or breach previously provided assurances.

The government is also not supposed to take steps indirectly to expropriate the investment, it said.