Cadbury to face tough questions over so-called “phantom factory” scam

The story, broken by Forbes India, revolves around Cadbury’s Baddi manufacturing unit in Himachal Pradesh. The authorities suggest this has been a “phantom factory” that has pretended to produce chocolate and sweets since 2010, and say as much in a 103-page report that accuses Cadbury of manipulating invoices and other documents to gain tax exemption.

This exemption applies to any company that began production in a new plant in the northern state by March 31, 2010. For its part, Cadbury India emphatically denies the allegations, saying the company plans to contest the allegation as its executives “acted in good faith based on legal advice in the decision to claim excise benefit in respect of our plant in Baddi”, Forbes reported.

Delayed by red tape​

However, according to the Directorate of General Excise Intelligence, there is no way that Cadbury could have begun operations by the HP deadline because government agencies were still reviewing approvals for the site.

What’s more, it alleges that the unit came as part of the redevelopment of an existing factory on the same site, and not a new one. If that was the case, it would mean that Cadbury had misrepresented the plant as eligible for tax exemption.

The United States Securities and Exchange Commission quickly got wind of the former allegation, reported by a whistleblower, and is now investigating whether Cadbury had bribed Indian officials to make the approvals process move faster. Mondelez, Cadbury’s parent company, is co-operating that investigation under the Foreign Corrupt Practices Act.

Case to answer​

The Indian excise department’s notice calls on over a dozen current and former Cadbury staff and government officials to respond to specific allegations that they willfully broke the law. These include managing director Anand Kripalu, as well as senior managers Jaiboy Philips and Sanjay Kurup, who were directly responsible for setting up the unit. Philips and Kurup have since left the company.

In a statement Cadbury India said: “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 show cause is a matter of form in any such enquiry.”

This case is the latest example of the government, is under intense pressure to bridge a sizeable budget gap ahead of last year’s general election, finding ways to prise billions of dollars from overseas companies that it says haven’t properly valued transactions with their Indian subsidiaries. Last year, the finance ministry famously recalculated Vodafone’s tax bill retrospectively on what it called the undervaluation of the transfer of shares, and took similar action more recently against Royal Dutch Shell.