What happens if I don't submit the additional documents that the embassy is asking?

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I don't think this fully makes sense legally, but what they could do in practice is invalidate the visa. They would not hold onto the passport indefinitely and they should certainly not start ripping off pages. But there are a number of situations where cancelling a visa is the proper course of action and there is a procedure for that.

Specifically, a Schengen visa can be either “revoked” or “annulled”. A visa should be revoked when the conditions for issuing it no longer apply and you are not allowed to enter the Schengen area using this visa anymore but there is no suggestion of foul play or anything. A visa should be annulled if it should never have been issued in the first place and in particular if there was some fraud involved. The latter is obviously more serious.

Consulates and border guards should have cancellation stamps (in the country's language) to put in your passport and they would also update the relevant database (called the VIS) so that your visa would be flagged as invalid. This also means that they can still decide to invalidate the visa even after you have recovered your passport. In that case, the cancellation would not be immediately visible (e.g. to an airline agent inspecting the passport) but (most) border guards would still know that you are not allowed to enter.

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