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Govt starts tax inquiry into Cadbury's takeover by US-based Kraft
January, 04th 2011

The government has initiated an inquiry into Cadbury India's takeover by US-based Kraft Food Inc on Delhi High Court's directive, for alleged tax evasion and flouting of buyout norms.

The Finance Ministry has initiated the inquiry under the Income Tax Act on the order of the High Court, which asked the government last month to complete the probe within 8 weeks.

In a similar case, UK-based Vodafone's arm has been asked by authorities to pay over Rs 11,000 crore in taxes for buying Hong Kong-based Hutchison's telecom company. The deal involved Hutchison Telecom's India assets in a JV with the Essar group.

The court gave the directive in the Kraft-Cadbury case on a complaint by social activist Ved Prakash, seeking action against the entities involved for flouting takeover laws. The Ministry of Finance took cognisance of the complaint and has directed the probe.

"I am directed to inform you that taking cognisance of the petition filed by you, action has been initiated in the matter under Income Tax laws," Under Secretary Salil Mishra said in his letter addressed to Prakash.

While refusing to go into the merits of the case, the court had asked Prakash to approach the government and the authorities concerned.

Prakash, in a letter on December 14, 2010, had made representation to the Central Government and the Income Tax Department . On December 1, 2010, the court had asked Prakash to make a representation to the government on the allegations levelled against Kraft Food Inc over the acquisition of Cadbury India, a subsidiary of UK-based Schweppes Cadbury PLC.

"If the representation is submitted, the competent authority shall address the same within eight weeks therefrom," the court had said.

The Public Interest Litigation (PIL) filed by Prakash alleges huge loss to the Indian exchequer on account of tax evasion in Kraft's takeover of Cadbury. PIL claims that while acquiring the shares and assets of Cadbury, Kraft Food Inc was under an obligation to pay tax on the acquisition of the Indian business.

Kraft Foods had acquired British candy maker Cadbury for about $19.6 billion in February 2010 and the deal included the UK firm's Indian subsidiary.

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