Cadbury India slapped with a Rs.252 crore excise penalty
The unpaid taxes date to 2010 when the company set up a facility in Baddi
Indian tax authorities have tightened the screws on Cadbury India. At the end of a three year investigation the company has been asked to explain why it shouldn’t be held liable for Rs 252 crore ($45 million) in unpaid taxes dating back to 2010.
The news comes as a setback to Cadbury India, which has steadfastly denied any wrongdoing and maintained that it acted on legal advice offered while setting up a new unit in Baddi, Himachal Pradesh. The tax demand also has the potential to significantly dent the anticipated savings of Rs 521 crore over a ten year period the company hoped to make by setting shop in Baddi. “We are committed to our Baddi facility,” a Cadbury India spokeswoman said.
In a notice spanning 103 pages, a copy of which is with Forbes India, the Directorate General of Central Excise Intelligence has given the company 30 days to respond."We plan to contest the show cause as we firmly believe our executives acted in good faith based on legal advice in the decision to claim excise benefit in respect of our plant in Baddi, " said a Cadbury India spokeswoman.
In an August 2012 story Forbes India reported on the company’s run in with the excise department. According to the notice, the run-ins, which began in 2010, show that the company wilfully mislead the excise department on the existence of a new unit to manufacture 5-Star and Dairy Milk chocolates, two of Cadbury’s best selling products in India.
In their notice, tax authorities allege that the unit had originally been a part of an erstwhile factory, but in order to get a tax break for 10 years, the company had to show it as being separate. While the company filed an application for the tax break, it didn’t take adequate care to ensure that the unit had been separated from an older unit at the same facility—a necessary condition to avail of the tax exemption. The company separated the unit, but the tax authorities wanted proof that the requisite permissions had been obtained for a separate unit. In its haste to get the permissions, the company ended up bribing officials from a host of state government departments.
In 2010, Kraft acquired Cadbury globally. It has since spun of its foods business as Mondelez International. A whistle-blower reported the payment of bribes to hasten the statutory approvals for the second unit in Baddi. The bribes paid caught the attention of the Securities and Exchange Commission, which has launched its own separate investigation under the Foreign Corrupt Practices Act. The outcome of the SEC investigation is still not public.
