India’s Directorate of Revenue Intelligence is investigating import tax classifications for bulk Scotch concentrate used by Diageo and Pernod Ricard. This dispute over whether these imports qualify for a 75% or 150% tariff could lead to significant back-tax liabilities and affect profit margins for the companies’ locally bottled brands.
Global liquor giants Diageo and Pernod Ricard are facing regulatory scrutiny in India regarding the customs classification of bulk Scotch concentrate. The Directorate of Revenue Intelligence (DRI) has initiated an investigation to determine whether these imported ingredients, which are used to blend and bottle popular local brands like Blenders Pride and Royal Stag, qualify for the lower 75% import duty set under the recent India-UK trade pact. Indian authorities have reportedly indicated that these imports may remain subject to the standard 150% duty, sparking a disagreement over tax policy and trade agreement interpretation.
For these companies, the investigation centers on how they classify their imports versus how the government interprets the trade deal terms. The discrepancy between a 75% and 150% tax rate is significant, as it directly impacts the cost of production for the Indian Made Foreign Liquor (IMFL) segment, which represents a large portion of their business in the country. If the government determines that the higher duty applies, both companies could face demands for unpaid taxes covering past periods, creating potential financial pressure.
This investigation adds another layer of regulatory complexity for Pernod Ricard in particular, which is already managing other legal challenges in India, including an ongoing dispute involving a $314 million back-tax claim. For both firms, the ability to effectively blend imported Scotch with domestic spirit is a critical part of their business model, as it allows them to offer premium whisky brands at a price point accessible to the Indian market.
The broader Indian alcohol sector, estimated at $65 billion, relies heavily on these trade frameworks to maintain competitive pricing. The International Spirits and Wines Association of India (ISWAI) has raised concerns that these restrictive interpretations could undermine the goals of the India-UK trade agreement, which was intended to streamline market access. The uncertainty surrounding this tax classification creates a challenging environment for multinationals that operate complex supply chains involving both imported raw materials and domestic manufacturing.
Investors will likely track government clarifications regarding the classification of bulk concentrates, as any change in duty structure could necessitate price adjustments or result in lower profit margins if companies choose to absorb the costs. The resolution of this standoff will also likely serve as a benchmark for how India applies the terms of future trade deals to hybrid manufacturing processes, where goods are partially imported and partially produced locally.