The Madras High Court asked the Tamil Nadu sales tax department to reconsider its Rs 2,400 crore claim on Nokia India, but asked the mobile handset manufacturer to deposit 10% of the amount as deposit within eight weeks.

"Now, by virtue of this order, the first respondent (the Tamil Nadu tax authorities) is directed to reconsider the entire matter afresh," wrote Justice B Rajendran in the order. "At the same time, the revenue also has to be safeguarded to some extent."

A few weeks ago, the Tamil Nadu tax department had sent a tax notice to the company alleging that it had masked domestic sales as exports, thereby evading taxes for three financials beginning 2009-2010.

Reacting to the judgment, Nokia India said, "Nokia is weighing its options for legal recourse post today's Madras High Court ruling. It would like to reiterate that it continues to see the Tamil Nadu claim as without merit and will defend itself vigorously." Nokia's lawyers Arvind P Datar and Vikas Srivastav argued earlier in the court saying the tax department had not granted them a personal hearing to explain their case.

They also told the court that due to liquidity problems, the company would not be able to comply with a proposal to deposit money into an escrow account.

Nokia India, which operates out of an SEZ, enjoys tax exemption benefits for exporting mobile phone handsets while attracting tax for those sold within India. The government counsel had defended the case saying the company had not produced enough documents to support export claims.

Nokia is already fighting a Rs 21,000-crore claim by the income tax department over royalty payments. The tax authorities had frozen the company's assets, mainly its factory near Chennai.

The Microsoft deal concluded last week but the Finnish firm's Chennai and Korean facilities were left out of it. The 7,000-plus employees of Nokia India's Chennai factory were hoping to be part of the global deal but the facility is now operating as a contract manufacturer for Microsoft.

The employees are hoping that once the tax disputes are resolved in India, Microsoft would buy the Ch