Indian issues

Excise issues tax notices to two Mallya empire companies

By RJ Whitehead

- Last updated on GMT

Excise issues tax notices to two Mallya empire companies
Two of flamboyant Indian drinks tycoon Vijay Mallya’s businesses have been issued show-cause-cum-demand notices by the Directorate General of Central Excise Intelligence for allegedly evading service tax of Rs91 crore (US$16.7m)

The notices apply to United Breweries and United Spirits, which are both market leaders, and relates to their sponsorship activities, including sponsorship of the Indian Premier League, various football and motorsport teams and Indian Fashion Week. 

The service tax notices call for Rs21.7 crore (US$4m) UB and Rs69.3 crore (US$12.7m) from USL.

"Both the firms have evaded the service tax on sponsoring various shows and sports events​," the PTI quoted a senior DGCEI official as saying. 

First step

According to officials, a DGCEI team had recently visited the Bangalore offices of both the firms. They said that if the amount was not paid within a month, penalty of 25% would be imposed on the total amount. 

Meanwhile, United Spirits has hit back at the notices. "DGCEI has, without verifying the nature of the expenses accounted for in the ledger extract, considered the entire amount as 'sponsorship services' and have served the show cause notice on 23/4/13 for Rs.69.3 crore", a company statement said. 

The company said it was in the process of replying to the show cause notices by highlighting the "error​". 

Valuation errors

In a parallel statement, United Breweries said the excise directorate had note taken into account payments already made: "United Breweries has always been tax compliant and has been paying service tax inter alia on sponsorship of sports activity, as applicable from the effective date of its applicability​. 

The show cause is fastened with valuation errors and requires thorough scrutiny. We are in the process of filing our detailed reply and explanations shortly​."

Mallya, one of India’s larger-than-life businessmen and pioneer of the good-life branding that has played a massive part in taking UB’s Kingfisher brand to become the undisputed leader of beer sales in the country, now cuts a sorry figure. 

While his drinks concerns fight these service tax notices, Mallya has had a much longer battle on his hands to save his beleaguered Kingfisher Airlines, which owes a consortium of 17 banks a total of Rs7,000 crore (US$1.3bn) in debts. About Rs1,000 crore (US$183m) has been recovered, and the State Bank of India, the leader of the consortium, is now moving to liquidate Mallya’s personal guarantees. 

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