New Delhi, Jan 28 (IANS): The government Wednesday decided not to appeal against a Bombay High Court ruling that telecom service provider Vodafone was not liable to pay tax demand of Rs.3,200 crore in a transfer pricing case, Communications and IT Minister Ravi Shankar Prasad said here.

"The cabinet has decided not to move Supreme Court in this regard. This is an important decision," he told reporters after a meeting here of the union cabinet presided over by Prime Minister Narendra Modi.

Prasad said: "Today, the Cabinet by taking a decision not to challenge in the Supreme Court (the Bombay High Court) order of holding Vodafone India's contention that the transaction, being international, is not amenable to tax... we have given a kind of signal...

"Mainly where Income Tax liability is clear, unambiguous it shall be charged, where it is over-stretched without any legal authority the government will be fair. That is the indication," the minister said.

Prasad said Finance Minister Arun Jaitley discussed the matter with the entire Central Board of Direct Taxes, Attorney General Mukul Rohatgi and Solicitor General Ranjit Kumar before arriving at this decision.

“After legal examination, it was deduced that the Bombay High Court decision was right and this fruitless litigation is avoidable. Therefore, a conscious decision has been taken not to file an appeal in the Supreme Court,” Prasad said.

The Bombay High Court, in an order Oct 10, 2014, had said the UK-based Vodafone is not liable to pay an income tax demand of Rs.3,200 crore in a case relating to transfer pricing.

The Income Tax department had asked the company to pay additional income tax alleging that it had undervalued its shares in its subsidiary Vodafone India Services while transferring them to the parent company.