New Delhi: The government will soon set up an Inter-Ministerial Group (IMG), headed by Finance Secretary R S Gujral, to look into Vodafone's notice threatening international arbitration in the Rs 11,000-crore tax case.

"The government will form an Inter-Ministerial Group (IMG) soon to examine the notice of Vodafone," a senior finance official told.

Last week, the Dutch subsidiary of UK-based telecom major Vodafone had served a notice on the Indian government invoking Bilateral Investment Protection Agreement(BIPA) between India and the Netherlands and threatened international arbitration in the tax case.

Besides Gujral, the official said, the IMG would include Department of Economic Affairs (DEA) Secretary R Gopalan, Telecom Secretary  R Chandrashekhar and officials of the Law and Justice Ministry.

The official further pointed out that the notice served by Vodafone is "premature. Taxation does not come under BIPA".

The issue pertains to the proposed amendment in Income Tax Act with retrospective effect, which would bring Vodafone-type deals under the tax net and the UK-based telecom firm would be liable to pay Rs 11,000-crore tax for its acquisition of Hutchison's stake in Hutchison Essar Limited in May 2007.

Even Gujral had earlier said that Vodafone-like transactions, involving domestic assets, are liable to be taxed in the UK, the US, China and other OECD countries.

Vodafone, however, in a statement had said, "...the proposal to tax indirect transfers of Indian companies is without regard to international taxing norms and is not in line with the OECD or the UN model double taxation treaty."

Another Finance Ministry official had also questioned the decision of the British telecom major to invoke India-Netherlands investment treaty, saying the USD-11.2-billion deal was signed in Cayman Islands.

Several global bodies had written letters to Prime Minister Manmohan Singh and other ministers saying that the government's proposal to amend the Income Tax Act to bring into the tax net Vodafone-type overseas deals involving domestic assets would hurt foreign investment.

The issue was also taken up by US Treasury Secretary Timothy Geithner with Finance Ministry Pranab Mukherjee during his recent visit to the US.

Vodafone, it may be mentioned, had earlier won the tax dispute case in the Supreme Court which held that the company was not liable to pay Rs 11,000 crore stemming from its 2007 acquisition of Hutchison's stake.