Customs Hold Bulk Scotch Shipments As India-UK FTA Tariff Dispute Escalates

New Delhi, Nov 11 (KNN) Indian customs authorities are holding more than 80 containers of bulk Scotch whisky imported by Pernod Ricard and Diageo over a dispute on the applicable import duty under the India-UK trade agreement.

The dispute centres on whether bulk Scotch concentrates used in manufacturing whisky brands qualify for the reduced 75 Percent import duty under the trade pact, which came into effect in July. Customs investigators maintain that the concession applies only to finished products, such as bottled Scotch, and not to concentrates that undergo further processing. They have insisted that the shipments attract a 150 Percent duty, TOI reported. 

Following industry representations, the Commerce Ministry assured senior executives on November 2 that India would honour the trade pact and seek an early resolution. However, a confidential November 4 memo from the Finance Ministry's Directorate of Revenue Intelligence (DRI), reviewed by Reuters, instructed customs commissioners across the country to continue applying the higher duty.

The DRI memo said importers were "incorrectly" claiming benefits under the India-UK trade pact for bulk Scotch shipments. It stated that the products should attract a 150 Percent tariff under a customs classification introduced on May 1 for "compound alcoholic preparations".

The memo warned that misclassification had "large-scale, recurring substantial revenue implications" and directed customs officials to apply the higher duty.

"Preliminary investigation revealed that the imported goods are not finished whisky/brand/rum as such, but are concentrates/compound preparations which are subjected to further manufacturing," the memo said.

A senior Finance Ministry source told Reuters that the Finance and Commerce Ministries were discussing an appropriate resolution.

Pernod Ricard and Diageo each have more than 40 containers held at Indian ports, while Bacardi has another five containers on hold, according to industry sources cited by Reuters. The two companies are unwilling to pay the higher duty. Prolonged delays could disrupt supplies.

In recent weeks, tax officials have also searched the offices of several companies, including Pernod Ricard and Diageo, and questioned executives.

Around 80 Percent of Scotch whisky imports from Britain by volume arrive in bulk and are subsequently used to manufacture Indian-Made Foreign Liquor (IMFL), which blends smaller quantities of Scotch with other spirits and ingredients.

Scotch exports to India were valued at USD 335 million in 2024. The Scotch Whisky Association has estimated that the India-UK trade agreement could increase the value of this trade by USD 1.34 billion over five years.

The International Spirits and Wines Association of India has privately cautioned New Delhi that the dispute "risks undermining, in practice, an important market-access benefit negotiated and agreed between India and the United Kingdom".

Tariff disputes have previously created friction for foreign investors in India, with multinational companies facing demands for substantial back-tax payments. Similar disputes have involved companies such as Samsung and Volkswagen.

(KNN Bureau)