INSUBCONTINENT EXCLUSIVE:
charges machinery-related costs for manufacturing its Marlboro cigarettes in the country, the company said on Wednesday, following a Reuters
article that showed it may have circumvented foreign direct investment rules.Philip Morris has for years paid manufacturing costs to Godfrey
Phillips, despite a nine-year-old government ban on foreign direct investment in the industry, Reuters reported last week, based on a review
rules.India prohibited foreign direct investment in cigarette manufacturing in 2010
Ahead of the ban, Philip Morris formed a new wholesale trading company with Godfrey in 2009, and the two sides signed a procurement
"manufactures Marlboro cigarettes and recharges any costs related to special machinery for the manufacture" of those cigarettes to the
global tobacco giant's domestic unit."This recharge is simply a business expense," Venkatesh told Reuters by e-mail, adding that the
arrangements were in "full compliance" with regulations.Philip Morris had not commented on the Reuters story after it was published on March
On Monday, Godfrey told stock exchanges it was in compliance with laws and any suggestion it had violated foreign investment rules was
"completely misconceived and misplaced".After the Reuters report was published, a senior official at country's main financial crime-fighting
agency, the Enforcement Directorate, said Philip Morris and Godfrey were being investigated for alleged violations of the country's laws
The scope of the investigation, the source added, was much broader than the issues highlighted in the Reuters story.Three former officials
and one former head of the Enforcement Directorate had reviewed the Philip Morris documents for Reuters and said the dealings should be
investigated for potentially breaking the foreign investment rules."We remain available to discuss this matter further with the appropriate
regulatory authorities," Venkatesh said in his e-mail to Reuters on Wednesday.Philip Morris paid Godfrey for items ranging from large
cigarette-making machines to costs of smaller equipment such as barcode scanners and printers deployed in Godfrey's factories, the Reuters
and January 2018 for manufacturing-related charges.One invoice from January 2018 sent from Godfrey to Philip Morris showed the company had
spent Rs Rs 20.6 crore ($3 million) on capital expenditure for Marlboro-related manufacturing activities since 2009, though it was not clear
how much of that was paid by Philip Morris.Other than regular payments, Philip Morris also signed off on one-time expenses and refurbishment
costs incurred by Godfrey on at least two occasions in 2013 and 2014
It then accounted those transactions internally under a heading "Packaging - Research", the documents showed.
