Indian tax authorities have launched an investigation into global liquor giants Pernod Ricard and Diageo over allegations that certain bulk Scotch whisky imports were incorrectly classified to benefit from reduced tariffs under the India-UK free trade agreement, according to a Reuters report citing five industry sources.
The investigation focuses on whether the companies improperly claimed lower import duties introduced through the bilateral trade deal, which took effect on July 15. Under the agreement, India reduced tariffs on eligible Scotch whisky imports from 150% to 75%, creating significant opportunities for British spirits exporters.
However, Indian tax officials reportedly believe that the reduced tariff rates may not apply to bulk Scotch concentrates imported for blending and manufacturing alcoholic beverages domestically.
Last week, officials from India's Directorate of Revenue Intelligence visited Pernod Ricard's headquarters near New Delhi, questioning executives and examining documents related to Scotch whisky imports.
Meanwhile, Diageo's Indian subsidiary, United Spirits, disclosed that authorities searched several of its offices on Friday as part of what it described as an industry-wide investigation.
Both companies have confirmed their cooperation with Indian authorities. Pernod Ricard said it was providing the requested information, while Diageo maintained that its operations comply with applicable Indian regulations.
Pernod Ricard and Diageo dominate India's estimated $65 billion alcohol market, producing popular whisky brands such as Royal Stag, Blenders Pride and McDowell's. Both companies rely on imported Scotch concentrates that are blended with other ingredients for domestic consumption.
The investigation could raise fresh concerns among international businesses operating in India, where import classification disputes have previously resulted in substantial retrospective tax demands against multinational corporations, including Samsung, LG and Volkswagen.
The United Kingdom remains India's largest supplier of imported spirits, accounting for nearly 75% of the market, according to Crisil Ratings. British whisky exports to India exceeded £200 million in 2022, highlighting the commercial importance of reduced trade barriers.
Pernod Ricard is already contesting a separate $314 million Indian tax demand involving alleged import undervaluation, allegations the company denies.
The latest investigation could increase regulatory uncertainty for international liquor manufacturers seeking to benefit from the India-UK trade agreement, particularly if authorities determine that bulk Scotch imports are excluded from preferential tariff treatment.
