Andy Halford, Vodafone's chief financial officer said to FT that the Indian authorities had threatened to impose penalties for non-payment that could raise its outstanding tax liability to $5 billion.

Andy Halford joined Vodafone in 1999 and has been group chief financial officer of the world"s largest mobile company for the last six years and the firm entered into Indian market four years ago.

According to Indian tax authorities, Vodafone is liable to pay $2.5 billion that includes $10.9 billion acquisition of Hutchison Essar, happened in 2007 . Vodafone claims that no such tax is payable because the transaction took place in Cayman Island and not in India, report said.

Vodafone"s $2.5 billion tax case is set to come up in the Supreme Court this month. The company has set aside $2.5 billion in an escrow account in the event the Supreme Court rules against it. The company claims that the law is on its side and has hence made no special provision for any payout.

The company had earlier fought the case in Mumbai High Court.

In April, the Supreme Court asked the tax authorities of the country to restrain from enforcing penalties on Vodafone until an order is passed after a case hearing in July, but allowed it to continue with its proceedings.

Halford said, this acquisition deal has proved to be expensive one. “We"ve done a lot of M&A and this has never happened. We are not making any moves until this is resolved," He was quoted by FT.

The company had already invested $23 billion in the country, including $12 billion for acquisition of the 67 per cent stake of Hutchison, and would now pay $5 billion to Essar for buying its stake. Besides, it has already invested $6 billion to roll out operations and acquire spectrum in the last four years.

The global telecom major, which is present in about 30 countries across the world, has recently added India to its portfolio, beside the US and Europe. These tax issues may impact Vodafone's further investments in India until they get clarity on issues such as spectrum and tax.

Until the case is not settled, Vodafone will not make its decision clear if it wants to list the Indian arm on the local stock exchange.

OneIndia Money