Cairn India gets $3.3 bln tax demand days after ex-parent contests own bill

By Aman Shah

MUMBAI, March 13 (Reuters) - Cairn India Ltd, a unit of London-listed Vedanta Group Plc, said it received a demand of about 204 billion rupees ($3.26 billion) from the Indian tax office on Friday in relation to the 2007 listing of the company.

Cairn India, the country's largest private sector crude oil producer, said in a statement to the stock exchanges that it did not agree with the demand and would pursue all possible options to "protect its interest".

Cairn India received the order three days after Cairn Energy (LSE: CNE.L - news) Plc, its former parent, said that it had filed a formal dispute against a $1.6 billion demand from the Indian tax department related to the same transaction.

Cairn Energy sold its majority stake in Cairn India to Vedanta in 2011. The British company's stake in Cairn India was reduced to about 10 percent after the transaction.

The high-value tax demand on the two companies comes after the Indian government, led by Prime Minister Narendra Modi, had sought to reduce tax-related litigation and move towards a tax-friendly regime to boost much-needed foreign investment.

Cairn Energy and Cairn India join a slew of multinational firms including Vodafone Group Plc, Royal Dutch Shell (Xetra: R6C1.DE - news) Plc, IBM Corp and Microsoft Corp that have fallen foul of India's tax collectors in recent years.

Britain's Foreign Secretary Philip Hammond said Finance Minister Arun Jaitley explained that the Cairn Energy case was started by the previous government and that New Delhi was powerless to stop it.

Jaitley is scheduled to arrive in London on Friday to drum up investment in his country.

Cairn India said on Friday the tax office raised the demand after its alleged failure to deduct withholding tax on capital gains made by its former parent during the fiscal year ended March 2007 as part of a reorganisation ahead of its market listing.

The demand comprises 102.48 billion rupees in outstanding tax and a similar amount in interest.

News of the tax order pulled Cairn India shares down as much as 3.8 percent, while the main Mumbai market was down 1.4 percent. Cairn Energy shares were down 2.8 percent.

($1 = 62.6700 Indian rupees) (Editing by Sumeet Chatterjee)