File photo: Bottles of Absolut vodka, produced by Pernod Ricard, are displayed at a wine shop (Picture credit: Reuters)
Indian tax authorities are investigating whether liquor makers Pernod Ricard and Diageo wrongly classified bulk Scotch whisky imports to claim lower tariffs under the India-UK trade agreement, Reuters reported, citing five industry sources familiar with the matter.The investigation centres on whether the companies were eligible for the reduced import duty introduced under the pact, which came into effect on July 15.India agreed to cut tariffs on certain Scotch imports to 75 per cent from 150 per cent.However, tax inspectors have argued that the duty reduction does not apply to bulk Scotch concentrates, four people familiar with the matter told Reuters.“The tax department is concerned that bulk imports are being wrongly classified,” one of the sources said.Last week, tax inspectors visited Pernod Ricard's India headquarters near New Delhi and questioned company executives about its Scotch imports, three sources told Reuters.During the visit on Thursday, officials reviewed documents related to bulk imports, although they have not contacted the company again since, one source said.Diageo's Indian unit, United Spirits, disclosed in a stock exchange filing last week that its offices at multiple locations had been searched on Friday as part of an “industry-wide exercise” by authorities.
The company did not specify the subject of the searches.Two sources told Reuters that Diageo was also under investigation over the classification of some Scotch imports.
Companies say they are cooperating with authorities
Pernod Ricard told Reuters that it was cooperating with the Directorate of Revenue Intelligence and providing all the information requested by officials. The company said it was committed to addressing any questions raised by the authorities.Diageo also said it was cooperating with Indian authorities and had always complied with local laws. In its stock exchange disclosure, United Spirits said it had provided all documents and clarifications sought.The investigation comes amid longstanding disputes between foreign companies and Indian tax authorities over import classifications and tariff payments.Such disputes have involved companies including Samsung, LG and Volkswagen, with officials often raising substantial back-tax demands years after goods were imported.
India-UK trade pact cuts Scotch
Pernod Ricard, a French company, and Britain's Diageo dominate India's $65 billion alcohol market, according to Reuters. Both import bulk Scotch concentrates, which are mixed with other ingredients to produce brands such as Royal Stag, Blenders Pride and McDowell's.The India-UK trade agreement reduced import tariffs on certain Scotch products by half, from 150 per cent to 75 per cent, from July 15. The tariff is scheduled to fall further to 40 per cent over the next 10 years.The lower duties have already led to price cuts for some imported Scotch whiskies in several states. Diageo and Pernod Ricard reduced prices by around 10-15 per cent for selected products in Maharashtra, Rajasthan, Goa and Uttar Pradesh.Brands affected included Diageo's Johnnie Walker Black Label and J&B, while Pernod Ricard sought approval for lower prices for Chivas, Ballantine's and The Glenlivet.The British government said in July that “iconic UK products”, including whisky and gin, would benefit from India's tariff reductions.
UK whisky exports to India were worth more than £200 million in 2022, according to the British government.Crisil Ratings said this year that the UK accounts for nearly 75 per cent of India's imported spirits market, primarily driven by Scotch whisky.
Pernod faces other regulatory challenges
Pernod Ricard is also facing antitrust cases in India, its largest market by volume, as well as a $314 million back-tax demand over allegations that it undervalued certain imports.
The company denies wrongdoing.Diageo, meanwhile, agreed in August to reformulate some of its popular drinks after India's food safety regulator banned them in some states over the addition of flavours that allegedly breached regulations.The latest investigation focuses on whether the companies' declarations for bulk Scotch imports qualified for the lower duties under the India-UK trade agreement.