India's tax office has demanded about Rs 550 crore ($88 million) from the local arm of chocolate maker Cadbury, now Mondelez International Inc, in a dispute over a factory in the foothills of the Himalayas, government officials said.
India, under pressure to reduce its budget deficit, has sought to boost fiscal revenue, not least by pursuing billions of dollars in unpaid tax claims against large multinationals in recent years.
But it has also vowed to step back from what critics call "tax terrorism" after high profile cases, such as bumper claims against Vodafone Group Plc, threatened to tarnish its reputation.
India's tax authorities began investigating Cadbury in 2011, accusing it of misusing an exemption provision in Himachal Pradesh that allowed a "tax holiday" scheme.
Tax authorities said Cadbury's new unit in the region was not operational at the end of March 2010, when the holiday ended, and was therefore not eligible. They said it began commercial operations months later.
Tax authorities in Himachal Pradesh said Mondelez India had been asked for about 5.5 billion rupees, a sum which includes payments dating back from 2010 onwards and a fine. Media reports on Monday put the fine at around 2.3 billion rupees.
Mondelez India disputed the charge and said in a statement that it had correctly claimed an exemption to the excise duty, adding that its factory has been working since 2009.
"The issue is one of interpretation, and it will be inappropriate on our part to discuss the details externally at this time since the matter is sub-judice and in the legal domain," the company said in a statement.