French liquor giant Pernod Ricard has asked an Indian court to strike down a government order to pay €251 million for allegedly undervaluing some of its imports for a decade in a bid to avoid India's stiff duties on imported spirits.
The demand is nearly double Pernod’s net profit in India, which last year stood at €134.4 million.
Indian customs authorities said the French spirits giant paid lower duty by undervaluing liquor concentrates it imported between 2009 and 2021 from a Pernod subsidiary, UK-based Chivas Brothers.
Import duties on liquor concentrates are pegged at a whopping 150 percent in India, putting foreign alcohol out of many consumers' price range.
“There are ample reasons to doubt the truth or accuracy of the value declared in relation to the imported goods,” customs officials said in a notice served on Pernod, which owns popular brands such as Absolut Vodka, Glenlivet Scotch whisky, Chivas Regal and Ballantine's.
“It appears that the import price has been decided in such a manner as to maximise profits accruable to holding companies,” said the notice, adding that Pernod should also pay interest on the money it owed.
Pernod's denial
The customs authorities also cited other violations by Pernod India, which accounts for more than 17 percent of India’s alcohol market.
Pernod India denied any wrongdoing as it filed an appeal in court, which came up for its first hearing earlier this week, with no immediate ruling.
It had "always endeavoured to act with full transparency and in compliance with customs and regulatory requirements", said Pernod, which had initially sought a settlement.
The latest dispute involving Pernod is the second since 2018 when another Indian agency, the Directorate of Revenue Intelligence, accused Pernod of evading €76.5 million in taxes in a separate case.
Tax labyrinth
Pernod’s revenue from operations in India stood at €2.48 billion in 2021, but it argued that a maze of federal and state taxes and custom duties ate up 79 percent of the amount.
Pernod and others also see India’s high duties as a stumbling block for consumers seeking quality imported spirits.
High taxes in India and different state-wise regulation policies are a challenge, according to French spirits giant Pernod Ricard. A bottle of its Chivas Regal costs around $80 in the southern Indian state of Karnataka, compared with about $30 in London https://t.co/19YsGKs0Xw pic.twitter.com/notOUYJoi3
— Reuters (@Reuters) April 29, 2022
Market experts say India will have 386 million drinkers by 2030 as alcohol loses its social taboo.
“India is the largest market in terms of volume with a fantastic growth potential,” said Chivas Brothers chairman Jean-Etienne Gourgues earlier this year.
The local liquor market was worth nearly €50 billion in 2020, but the steep prices of foreign brands – pushed up by taxes that can vary from state to state – have kept down their sales.
High taxes have riled many overseas investors who set up base in India in the hope of tapping a potentially lucrative market.
Free trade bonanza?
Industry experts and diplomats say a widely anticipated free trade agreement between the UK and India, expected by the end of October, could see Delhi reduce duty and taxes on premium foreign labels over three years.
India would slash import duty by 50 percent in the first year after signing the pact and gradually bring it down to 30 percent, an official said on condition of anonymity.
This move is also expected to open a big market for Indian liquor makers to export their products to the UK, according to Zee Business TV.
But some reports suggested that disagreements over British visas for Indian workers could delay the trade deal.
Local automobile makers have also sought a 30 percent cut in taxes on imported foreign cars in India, where the tariff ranges up to 100 percent.
