The Delhi High Court on Thursday accepted an appeal by Nokia to release its local factory after it was seized by authorities in a tax dispute, removing a hurdle to the sale of the company's mobile phone business to Microsoft.
The plant in Chennai is one of Nokia's biggest phone-making factories. Nokia had appealed the seizure and was scrambling to end the dispute ahead of the closure of the 5.4 billion euro Microsoft deal.
The Delhi High Court asked the Finnish company to deposit Rs 2,250 crore (Rs 22.50 billion) in an escrow account as a condition for lifting the freeze and transferring the facility to Microsoft.
The tax demand case will continue separately. If Nokia loses it may have to pay as much as $3.4 billion, which includes penalties for non-payment of tax and interest, according to a tax department lawyer.
Nokia's case is one of several high-profile tax disputes involving foreign companies in India, which has stepped up its pursuit of claims against such firms as it seeks to rein in its budget deficit.
Other foreign firms recently involved in tax disputes in India include IBM, Royal Dutch Shell, Vodafone Plc and LG Electronics Inc.
"It's a very fair and balanced order," said N.P. Sahni, a lawyer for the tax department. "It substantially protects the interest of the revenue (department) and also enables Nokia to go ahead with its proposed deal with Microsoft."
A spokesman for Nokia in Helsinki said the company would comment after analysing the ruling.
In March, Nokia was served with a tax demand for about Rs 208 crore (Rs 20.8 billion) covering five fiscal years starting from 2006-07, according to a notice on the Delhi High Court website.
Including the anticipated liability, or the tax bill for the years that have not been assessed by the authorities, the total liability could be roughly Rs 7,500 crore (Rs 75 billion), Mohan Parasaran, a lawyer representing the tax department, said on Wednesday.
If Nokia loses the legal battle, its liability could total Rs 21,000 crore (Rs 210 billion), which includes penalties and interest, Parasaran said. He declined to give additional details.
Nokia, which wanted the asset freeze to be lifted by December 12 to enable it to transfer the plant to Microsoft, has said it had not been served with any claim beyond the original Rs 208 crore (Rs 20.8 billion) notice.
(Reporting by Nigam Prusty; additional reporting by Ritsuko Ando; Writing by Sumeet Chatterjee)