India-UK FTA faces first hurdle as 40 containers of Pernod Ricard, Diageo Scotch stuck at ports amid tariff dispute

India's trade pact with the UK faces its first major dispute as customs officials seek a 150% tariff on bulk Scotch imports by Pernod Ricard and Diageo, despite assurances of a reduced 75% duty. Dozens of containers remain held at ports, raising concerns over supplies and market access.

The India-UK trade pact, which came into effect in July, is facing its first major dispute, with customs investigators seeking to impose a 150% tariff on bulk Scotch whisky shipments imported by Pernod Ricard and Diageo, Reuters reported.

Citing people familiar with the matter and a confidential government memo, the report said the companies are seeking assurances from India that their consignments qualify for a reduced 75% duty under the agreement.

According to investigators, the lower duty rate applies only to finished products, including bottled, ready-to-drink Scotch. After receiving representations from liquor companies, India's commerce ministry told senior executives on November 2 that it remained committed to the trade pact and would work to resolve the issue promptly. This led the companies to expect that the reduced tariff would apply to their shipments.

Why are customs officials seeking a 150% tariff?

However, a November 4 memo from the Finance Ministry's Directorate of Revenue Intelligence (DRI) reportedly instructed customs commissioners across the country to maintain their opposing position.

The DRI memo stated that importers were wrongly claiming preferential duty rates under the India-UK pact for bulk Scotch shipments. It argued that these products fall under a customs category for “compound alcoholic preparations”, which has attracted a 150% tariff since May 1.

The memo added that any misclassification by importers could have "large-scale, recurring substantial revenue implications". It also instructed officials to ensure that the 150% duty was correctly applied.

It further stated, "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."

However, the memo did not clearly explain the reasoning behind the investigators' position.

Dozens of Scotch whisky containers held at Indian ports

Although the commerce ministry's comments initially reassured companies such as Pernod Ricard and Diageo, customs authorities at Indian ports have withheld dozens of containers belonging to the two companies, which are unwilling to pay the higher duty.

Pernod Ricard and Diageo each have more than 40 containers held at ports. The prolonged delays could disrupt supplies. Separately, Bacardi has five containers on hold.

With the shipments still held up and the DRI maintaining its position, the tariff dispute remains unresolved.

Liquor industry raises concerns over trade pact

Tax authorities have conducted searches at the premises of several companies in recent weeks, including Pernod Ricard and Diageo, and have also questioned their executives.

The International Spirits and Wines Association of India has reportedly conveyed its concerns to the government privately, warning that the dispute could undermine a key market-access concession negotiated and agreed upon by India and the UK.

Disagreements over import duties have historically posed challenges for foreign businesses operating in India. The country has previously pursued substantial back-tax claims against multinational corporations, with Samsung and Volkswagen among the companies involved in such disputes.