The ministry of finance has initiated action to see if Kraft Foods will have to pay taxes to Indian authorities in its $19 billion takeover of Cadbury last year, as claimed by a public interest petition.
This is the second instance in recent years where questions have been raised on global firms' tax liability in India following a blockbuster deal.
Indian tax authorities last year asked Vodafone to pay $2.5 billion tax on its 2007 purchase of Hutchison Whampoa Ltd's mobile business in the country, which the company is currently fighting in court.
A New Delhi-based law firm filed a writ petition in the Delhi High Court last month saying Cadbury has evaded substantial tax liability in India, as a global deal in which U.S.-based Kraft took over Cadbury also included assets in India.
The court had asked the petitioners to make a representation before the ministry of finance.
Kraft sealed a friendly deal last year to buy British candy maker Cadbury for about $19.6 billion to create the world's biggest confectioner. Kraft sought Cadbury mainly because of its strong growth in emerging markets like India and Latin America.
"Cadbury has not paid any taxes, nothing has come to India in this whole transaction of $19 billion. So we filed a petition in the Delhi high court," Gaurang Kanth, managing director at Kanth & Associates, the petitioners' counsel, told Reuters.
"We could not really ascertain the exact amount as to how much will be the tax liability, because we were not really knowing the exact amount of transaction which Cadbury was undertaking in India," he said by telephone.
"Taking cognizance of the petition filed by you, action has been initiated in the matter under the Income Tax laws," Salil Mishra, an under secretary in the finance ministry wrote in a letter dated Dec. 22, in reply to the petitioners' letter.
The letter from the ministry was made available to Reuters by Kanth.
A finance ministry official, who did not wish to be named, told Reuters on Tuesday that the ministry had forwarded the petitioners' letter for necessary action.
A Kraft spokesman in India was not immediately available for comment.
The New York Times Dealbook earlier reported the news of India investigating possible tax liability on the deal.
A Kraft spokesman in India told the paper on Monday that the company was not aware of any litigation or investigation related to tax matters and the Cadbury deal, and had not been contacted by the Indian government on the matter.