India-UK FTA: Pernod, Diageo Scotch Imports Under Scrutiny

Indian tax officials are investigating whether Pernod Ricard and Diageo incorrectly classified some bulk Scotch imports to claim lower duties under the India-UK trade agreement, according to a Reuters report published by The Economic Times on October 19. The report cited five industry sources familiar with the matter; it did not report a finding of wrongdoing.

The dispute centres on eligibility for a tariff reduction, rather than the existence of the concession itself. The agreement took effect on July 15 and cut duties on certain Scotch imports from 150% to 75%, the report said. Four sources said inspectors maintained that bulk concentrates did not qualify for that relief.

Office searches and company responses

Inspectors visited Pernod Ricard's Indian headquarters near New Delhi without prior notice last week and questioned executives about Scotch imports, three sources said. One source placed the visit on Thursday and said officials examined bulk-import documents, with no further contact by the time of the report.

Diageo's Indian subsidiary, United Spirits, disclosed in a stock exchange filing last week that authorities had searched offices at several locations on Friday as part of an industry-wide exercise. The filing did not identify the subject of the searches. Two sources separately linked scrutiny of Diageo to the classification of Scotch imports.

Pernod Ricard said it was cooperating with the Directorate of Revenue Intelligence, supplying requested information and working to address officials' questions. Diageo also said it was cooperating and maintained that it had always complied with Indian law. Its exchange disclosure said documents and clarifications had been provided.

The revenue intelligence directorate did not respond to a request for comment. The reported position on bulk concentrates rests on unnamed sources; the account does not cite a published ruling resolving their eligibility for the reduced duty.

Why bulk Scotch classification matters

Pernod Ricard and Diageo are dominant players in India's alcohol market, which the report valued at $65 billion. They bring in bulk Scotch concentrates and blend them with other ingredients for brands including Royal Stag, Blenders Pride and McDowell's.

The tariff question therefore concerns an input used in locally marketed drinks, not simply finished bottles of imported Scotch. Whether those bulk shipments fall within the concession determines which duty rate applies.

Crisil Ratings said this year that the UK supplied almost 75% of India's imported spirits market, largely because of Scotch whisky. In July, the British government identified whisky and gin among the products benefiting from India's tariff changes and said UK whisky exports to India exceeded £200 million in 2022. That export figure is historical, not a measure of sales following the agreement.

Separate regulatory disputes

Pernod Ricard also faces antitrust cases in India, its largest market by volume, and a separate $314 million back-tax demand over alleged undervaluation of imports. It denies wrongdoing.

Diageo agreed in August to change the formulation of some popular drinks after India's food-safety regulator banned them in some states over the addition of flavours contrary to regulations. Those matters are distinct from the current examination of Scotch tariff classifications and do not establish a breach in this investigation.