New Delhi: The income-tax (I-T) department told the Supreme Court on Wednesday that it has begun proceedings against Vodafone Essar Gujarat Ltd in relation to transfer of certain passive infrastructure assets to Vodafone Essar Infrastructure Ltd (VEIL).

While VEIL was subsequently wound up and amalgamated into a new company called Indus Towers Ltd, the I-T department called the entire transaction a “colourable device" to avoid paying taxes.

A bench of justices F.M.I. Kalifulla and A.M. Sapre is considering the tax department’s appeal against a Gujarat high court decision to allow the demerger of Vodafone Essar’s assets to VEIL and Indus.

The Gujarat high court had refused to sanction the transfer of the passive infrastructure assets without consideration to VEIL. It found that the sole reason for the transaction was to “avoid tax". More than 3,500 crore in taxes were sought to be avoided by this scheme,according to the I-T department.

However, a two-judge bench of the Gujarat high court had reversed the position on appeal. The tax department then moved the apex court against this ruling.​​

Shreeja Sen contributed to this story.