New Delhi  - Global telecom giant Vodafone Monday began its arguments to fight a 2-billion-dollar tax bill on its purchase of a controlling stake in Indian mobile operator Hutchison Essar, officials and news reports said.

The Bombay High Court was hearing the arguments in the case which is being closely watched by multinationals in Europe and US as it could set an important precedent for merger and acquisition activity in the fast-growing Asian nation.

"The court will decide whether Vodafone owes the Indian Income Tax department 2 billion dollars as capital gains tax on the 11.1 billion dollar deal. It will hear arguments on the matter over the next five days," a Vodafone spokesman said in a telephone interview.

Vodafone contends that there is no tax liability as the deal took place between Vodafone Group, registered in Holland, and a Hutchison company registered in the Cayman Islands, both outside India's jurisdiction, the IANS news agency reported.

This week's hearing will decide on the validity of the Vodafone writ seeking an injunction against the Indian tax authority's investigation of the deal.

The Indian government is arguing that its capital gains claim is genuine as the assets of the company in question are on Indian soil.

Vodafone bought a 67-per-cent stake in Hutchison Essar India in March last year as part of its strategy to expand in countries that have rapidly growing mobile phone markets.

India is the world's second-largest phone market after China, with more than 261 million users. (dpa)