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Cadbury Slapped With Rs 250-cr Notice For Duty Evasion

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Confectionery giant Cadbury India Ltd has been slapped a notice for a demand of over Rs 250 crore in excise duty allegedly evaded by it by claiming exemption for a 'ghost' production unit.

The Directorate General of Central Excise Intelligence has issued the show-cause notice after its investigation found that the firm misused 'area-based exemption' for its new unit in Baddi, Himachal Pradesh even before it came into existence, official sources said.

A Cadbury India spokesperson said it will respond to the show-cause notice in consultation with its legal advisers.

"We are in the process of reviewing the contents of the show-cause notice from the Excise Department and will respond to it in consultation with our legal advisers. A show cause is a matter of form in any such enquiry," the spokesperson said in an email response to PTI query.

"A compliant and ethical corporate culture, which includes adhering to laws and regulations in the countries in which we operate, is integral to our success. To that end, we have been fully cooperating with the authorities on this enquiry.

"Since the process is currently under way, it will be inappropriate on our part to discuss the details at this time," he said.

Under central government norms, the area-based exemption for new industrial units of firms in Himachal Pradesh provide full exemption from excise duties for specified goods for a period of 10 years.

However, for availing this the unit should have been established before March 2010.

During investigation, the officials found that the company claimed excise duty exemption for its new unit in Sandoli village in Baddi relating to a period even before it came into existence, the sources said.

The Cadbury case comes as India is aggressively pursuing tax claims against multinationals as it seeks to rein in its budget deficit, with Royal Dutch Shell, Vodafone Plc and LG Electronics Inc among numerous firms involved in disputes.

Cadbury set up a factory in 2005 in Himachal Pradesh to take advantage of a 10-year "tax holiday" scheme for companies that started production by March 31, 2010, said a senior official at the tax department.

The company, now part of US snacks firm Mondelez International Inc, in 2009 told authorities it had set up another plant next to the existing one that should be also be exempted from tax until 2019, said the official at the Directorate General of Central Excise Intelligence.

However, the second plant was not operational as of March 31, 2010, when the tax holiday scheme ended, said the official, who declined to be named as he was not authorised to speak to the media. It begin commercial production a couple of months later.

A report on the Wall Street Journal quoted a former Cadbury executive as saying an expansion of the existing factory had been misrepresented as the construction of a second plant for the tax exemption. The tax official did not comment on the Journal's report.

Cadbury did not comment on the detail of the allegations, but said it was co-operating with the authorities.

"We are in the process of reviewing the contents of the show-cause notice from the Excise Department and will respond to it in consultation with our legal advisors," a Cadbury statement said.

Mondelez is reviewing the content of the show-cause notice from India's excise department, spokesman Michael Mitchell told Reuters in an emailed statement.

"We have been fully cooperating with the authorities on this enquiry," Mitchell said.

Read Also:  Cadbury India Faces Tax Probe


"Setting up of a factory and commencement of production leave a trail which is undisputable," said the tax practice head at a consultancy in New Delhi talking to Reuters, declining to be named as he was not authorised to comment on company disputes.

"My impression is that the directorate's findings are based on specific facts."

In a separate case, the income tax department has accused Cadbury's local unit of overpaying its parent company for brand royalty and service fees, thereby lowering its profit in India and resulting in a lower tax bill.

The company has challenged the ruling for 2007-08 and the local income tax tribunal has granted a stay on the tax demand upon payment of less than 10 per cent of the amount.

Cases involving the internal transfer of goods, services and assets -- known as transfer pricing -- have become a hot area of international tax law as revenue authorities in many countries have challenged companies efforts to minimise tax liabilities.

Cadbury was acquired by Kraft Foods Inc in 2010 in a $19 billion deal. Kraft then spun off its North American grocery business as Kraft Foods Group.

Mondelez is the name of what remains of Kraft Foods Inc after the spin-off. Its brands include Oreo cookies and Trident gum.

(Agencies)