Tariff Dispute Arises Over Bulk Scotch Imports Following India-UK Trade Deal

A recent trade agreement between India and the United Kingdom has encountered its first significant dispute concerning the tariff classification of bulk Scotch imports. Industry representatives have raised concerns that investigations by Indian authorities threaten to undermine the market-access benefits negotiated under the bilateral pact.

The India-UK trade deal, which was implemented on July 15 after years of protracted negotiations, included provisions to reduce import taxes on certain Scotch imports from 150 percent to 75 percent immediately, with a further reduction to 40 percent scheduled over 10 years. However, India's Directorate of Revenue Intelligence recently searched the offices of major distillers Pernod Ricard and Diageo and questioned executives as part of an investigation into whether imported products were misclassified to secure the lower tariff rate.

Indian government inspectors have informed companies that the reduced 75 percent tariff does not apply to bulk Scotch concentrates, which authorities contend must be declared under a customs classification that attracts a 150 percent duty. Both Pernod and Diageo import these bulk concentrates to blend with other ingredients for popular domestic brands such as Royal Stag, Blenders Pride, and McDowell’s.

In response to the regulatory actions, the International Spirits and Wines Association of India (ISWAI) addressed a letter to India's commerce minister. The association stated that the classification issue risks undermining an important market-access benefit agreed between India and the UK, warning that preferential tariff treatment could effectively become unavailable for these specific imports.

The $65 billion Indian alcohol market has reacted to the developments with concern, particularly given that Britain accounts for nearly 75 percent of India's imported spirits, predominantly driven by Scotch whisky according to Crisil Ratings. The Scotch Whisky Association emphasized that the import of bulk Scotch is integral to the overall success of whisky in India and called for adherence to the bilateral pact's core principles.

While Pernod Ricard and Diageo declined to comment directly on the ISWAI letter, both companies previously confirmed they are cooperating with the ongoing investigations. A spokesperson for the British government stated that officials are working with the Indian government to resolve the issue and ensure UK businesses can export under the tariffs agreed upon in the trade deal.

Import tariff disputes have a history of affecting foreign investors in India, who have occasionally faced demands for significant back taxes. Pernod Ricard already faces antitrust cases and a separate $314 million back-tax demand from Indian authorities over allegations of import undervaluation, charges which the company denies.

"Regulatory clarity remains a cornerstone for the success of any international trade agreement. When bilateral pacts face immediate friction over customs classifications and tax interpretations, it creates operational uncertainty for multinational enterprises and local stakeholders alike. For long-term foreign investment and market stability in India's highly regulated sectors, transparent dialogue and swift administrative resolutions are essential to ensure the intended economic benefits of such trade pacts are fully realized." — Dr. Shishir Gupta, Founder & CEO, StartupLanes