Cadbury hit with $92m tax bill in India over 'phantom' factory

Cadbury has been hit with a new Rs5.7bn ($92m) tax claim in India in relation to allegations that the Dairy Milk chocolate producer claimed excise benefits on a "phantom" factory.

The dispute is the latest in a series of tax battles involving global multinationals in India, including British-based oil group Cairn Energy and telecoms group Vodafone, denting the country's reputation as an investment destination.

Cadbury is fighting the tax bill. India's authorities suggest the confectioner, which is owned by global snacks business Mondelez International, provided inaccurate information when claiming an excise tax exemption linked to a factory in the northern Indian state of Himachal Pradesh.

The British-based chocolate brand completed an expansion of the plant in 2009. India's authorities have claimed the expansion was portrayed as a new facility, and therefore eligible for a tax exemption, rather than an enlargement of an older factory.

This in turn prompted media reports in India claiming Cadbury had sought tax benefits for a "phantom" factory that officially did not exist, a claim the company denies, along with any other wrongdoing in the case.

Cadbury said in a statement it planned to launch an appeal against the claim, describing the dispute as "one of interpretation".

"The Company will challenge the [order] in appeal, as we firmly believe that we have correctly claimed exemption of excise duty. We also firmly believe that our executives acted in good faith and within the law in the decision to claim excise benefit in respect of our plant," it said.

Cadbury declined to provide details of the new order. However one person with knowledge of the matter confirmed that the claim included unpaid tax and interest charges of Rs5.7bn.

Although Cadbury's case has little in common with disputes involving companies such as Vodafone and Cairn, tax experts said it formed part of a wider pattern in which foreign investors often came into conflict with tax inspectors over exemptions offered to encourage investment in India.

"This dispute is about whether Cadbury provided accurate records to claim this particular benefit, but it is part of a bigger problem," said Dinesh Kanabar, founder of Mumbai-based consultants Dhruva Tax Advisors.

"Foreign and Indian companies run into huge problems with the tax office over things like offers of tax holidays. Practically every time they ask for a benefit that they are due, the authorities find 100 reasons or glitches to say that it isn't due," he added.

Cadbury is India's leading chocolate brand by volume, although the company has not provided separate revenues for its operations in the country since it was bought by US-based food group Kraft for $19bn in 2010.

In 2012, Kraft split itself in two, creating Mondelez International. In its latest annual report, Mondelez confirmed it had received a claim for about $80m in unpaid taxes and penalties in India in early 2013. 

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