Exclusive-India holds Pernod, Diageo Scotch shipments as investigators seek higher tariff

By Aditya Kalra

NEW DELHI, Nov 11 (Reuters) - Indian customs is holding dozens of containers of bulk Scotch imported by Pernod Ricard and Diageo as investigators press for a 150% tariff, even though the companies rely on a New Delhi assurance of lower duties under the India-UK trade pact, according to four people with knowledge of the matter and a confidential government memo.

In the first major dispute linked to the trade deal, which took effect in July, customs investigators have ordered the higher tariff on the shipments arguing that bulk Scotch concentrates used to make whisky brands are not eligible for the pact's reduced 75% duty.

The investigators say the lower rate applies only to finished products such as bottled, ready-to-drink Scotch.

Following industry lobbying, India's commerce ministry assured senior executives on November 2 that it would honour the pact and resolve the dispute as soon as possible, leading liquor companies to believe the lower tariff would be applied.

However, a memo by the finance ministry's Directorate of Revenue Intelligence dated November 4, reviewed by Reuters, asks customs commissioners across India to continue to take a different view.

The memo said importers were "incorrectly" claiming benefits under the India-UK pact on bulk Scotch, which should attract a 150% tariff under a customs classification in effect since May 1 for so-called "compound alcoholic preparations".

Any misclassification by importers has "large-scale, recurring substantial revenue implications", the memo said, instructing customs officials to ensure the correct application of the 150% 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 confidential memo said, providing the clearest explanation yet of investigators' position.

India's finance ministry, which oversees customs authorities, and the commerce ministry did not respond to Reuters queries. The revenue directorate also did not respond.

The finance ministry and commerce ministry "are under discussion for an appropriate resolution of the matter", a senior finance ministry source said.

Pernod, which owns UK-based Scotch whisky producer Chivas Brothers, and Diageo did not reply to requests for comment.

CONTAINERS STUCK

Scotch exports to India totalled $335 million in 2024, and the Scotch Whisky Association has forecast the trade deal could boost that figure by $1.34 billion over five years.

About 80% of Scotch whisky imports from Britain by volume arrive in bulk. They are then used to produce Indian-Made Foreign Liquor, a category that blends small quantities of Scotch with other spirits and ingredients.

The memo and the detained containers indicate the tariff dispute remains unresolved.

While the commerce ministry's comments initially reassured companies including Pernod and Diageo, customs authorities at Indian ports have held dozens of containers belonging to the two companies, which are unwilling to pay the higher duty, the four people said.

Pernod and Diageo both have more than 40 containers each stuck at ports, two of the industry sources said, with prolonged hold-ups likely to disrupt supplies. Bacardi has five containers on hold, said a third source. The company didn't respond to queries.

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

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

Import tariff disputes have long been a point of friction for foreign investors in India, which has previously sought substantial back-tax payments from multinational companies. Similar disputes have involved companies including Samsung and Volkswagen.

(Reporting by Aditya Kalra. Additional reporting by Shivangi Acharya and Aftab Ahmed; Editing by Mark Potter)