By James Lamont in New Delhi

Vodafone, the UK-listed telecommunications company, has warned that it faces a doubling of the $2.5bn tax bill it is contesting in India?s Supreme Court.

Andy Halford, chief financial officer, said on Wednesday night that the Indian authorities had threatened to impose penalties for non-payment that could raise its outstanding tax liability to $5bn.

The Indian authorities are pursuing Vodafone for tax that they maintain is due on its 2007 acquisition of Hutchison Essar, a fast-growing Indian mobile operator, for $10.9bn.

India has been confronted by a series of high-profile corruption scandals ? including an alleged $39bn telecoms licensing scam ? and a controversy over untaxed capital flows out of the country.

Mr Halford said that Vodafone was in an ?invidious position?. He added: ?[The bill] is either $2.5bn or it could be double that if we take extreme [scenarios]. We?ve done a lot of M&A and this has never happened. We are not making any moves until this is resolved.?

Vodafone has set aside $2.5bn in an escrow account in the event that the Supreme Court rules against it before the end of the year. But the company has made no special provision for the liability in the belief that it will win the case.

Mr Halford told the Financial Times that Vodafone had secured 14bn euros ($22.5bn) in cash from the sale of minority stakes in Chinese, Japanese and French mobile operators. It would return about half of this to shareholders, while keeping the remainder for the tax bill and forthcoming spectrum sales.

He warned that the tax dispute had already “deflected from running the business and risked slowing down future expansion after the group had made an overall $23bn investment in India.

Vodafone?s case comes before the Supreme Court on July 19 and is expected to run for 12 weeks before a judgment.

Vodafone argues that no tax is due on the transaction because it was conducted between two non-Indian companies in the Cayman Islands. It also claims that it is the first foreign company in 50 years to be singled out for a retrospective liability on an acquisition.

Should Vodafone lose, companies including AT&T, the US telecoms group, Sanofi-Aventis, the French pharmaceuticals company, and global engineering group General Electric might also be liable for tax on deals relating to India.

Some analysts claim that this kind of unpredictability is responsible for a fall in foreign direct investment to India compared with other big emerging markets.

? The Financial Times Limited 2011