In a 103-page report, the government accuses Cadbury of creating a fraudulent paper trail, including invoices, order forms and accounting sheets, that made it appear as if it had a new factory in the northern state of Himachal Pradesh, The Wall Street Journal reported Tuesday.
The alleged scam was perpetrated to take advantage of a tax exemption for new plants put in operation by March 31, 2010, the report said.
A former Cadbury executive said an addition an existing factory was portrayed as a new plant to allow Cadbury to qualify for the tax exception, the Journal said.
The same plant is the subject of a Securities and Exchange Commission probe into possible violations of the Foreign Corrupt Practices Act, which covers bribery of foreign officials.
Cadbury said it was cooperating with both investigations.
"We are in the process of reviewing the contents of the show-cause notice from the (Indian) Excise Department and will respond to it under legal advice," company spokesman Michael Mitchell said in an email.
"We firmly believe our executives acted in good faith and based on legal advice," he said.