Vodafone (LSE: VOD.L - news) will on Friday hear the outcome of a long-running battle with the Indian tax office over a $2.5bn (£1.3bn) bill which the mobile phone giant argues that it did not run up.

The Indian Supreme Court will hand down its ruling in Delhi, deciding once and for all whether Vodafone should pay tax on its $11bn acquisition of a 67pc stake in Hutchison Whampoa (HKSE: 0013.HK - news) 's Indian mobile unit, which later became Vodafone Essar.

Vodafone has consistently protested against the tax bill on the grounds that the 2007 deal was between two overseas companies, that the tax was applied retrospectively, and capital gains tax is usually applied to the acquired company, not the buyer.

However, if Chief Justice Kapardia, the judge overseeing the case, comes down on the side of the Indian tax office, Vodafone could end up owing twice the initial bill because of late payment fees.

Vodafone handed a £356m deposit to the Supreme Court in November (Stuttgart: A0Z24E - news) , as well as a guarantee to pay a further £1.188bn if the ruling goes against it, but it has not made any provision for other penalties or costs.

The battle is acknowledged by Indian authorities as a test case, and the judgment is likely to have significant ramifications for other investors in the country.

India is Vodafone's fastest-growing territory and the mobile group has long talked about making an initial public offering of its Indian business, likely to be next year.

However, Vittorio Colao, Vodafone chief executive has also warned that the company may be put off investing further in the country if it loses the legal battle.

Andy Halford, Vodafone's chief financial officer, said last year that the case had put the group in an "invidious position". "We've done a lot of M&A and this has never happened. We are not making any moves until this is resolved."