India probes Diageo, Pernod imports after whisky tariffs cut to 75%
Key Facts
Indian tax officials are examining whether Diageo and Pernod Ricard misclassified some bulk Scotch whisky imports to benefit from lower duties, according to sources cited by Reuters. The investigation follows the entry into force of the India-Britain trade agreement on 15 July 2026, which cut whisky and gin tariffs from 150% to 75%. The dispute centres on the customs classification of the imported material and its eligibility for preferential treatment under the agreement. The sources said tax inspectors believe the reduction "does not apply to bulk concentrates". The companies import Scotch concentrates in containers to blend with other ingredients and produce drinks locally, according to Reuters' account of their operations. The scrutiny thus concerns the treatment of inputs used in local manufacturing, in a market whose imports of British whisky exceeded £200 million in 2022, according to the British government.
The action included an unannounced visit by tax inspectors to Pernod's Indian headquarters near New Delhi during the week before the report was published, according to Reuters' sources. Inspectors questioned company officials about the imports under scrutiny as part of an examination of the classification the company used to obtain tariff reductions. At Diageo, its Indian unit United Spirits said its offices at multiple locations were searched on Friday. The unit described the searches in a stock exchange filing as part of an "industry-wide exercise", placing the announced action beyond a single office. Pernod told Reuters it was cooperating with the Directorate of Revenue Intelligence and providing the information requested. Diageo also confirmed it was cooperating with Indian authorities and said it had "always complied with local laws".
Pernod already faces a separate $314 million tax demand over allegations that it undervalued some imports, according to Reuters, while the company denies wrongdoing. The new classification dispute coincides with growth in the company's Indian business, where it reported a 19% sales increase in the first quarter of its fiscal year 2027. Pernod recorded 7% sales growth in the Indian market in fiscal year 2026, according to its annual results. Growth for that year rises to 9% excluding Imperial Blue, according to the comparison the company provided in its results announcement. These results show the company's Indian operations recording sales growth alongside demands and scrutiny concerning the treatment of its imports. The earlier demand concerns import valuation, while the new investigation examines the classification of some bulk concentrates for eligibility for lower duties, according to the facts reported by Reuters.
At Diageo, United Spirits is a business in which the group holds a 55.88% stake, according to a report issued by credit rating agency Crisil in August 2026. The Indian company recorded revenue growth of 8% in fiscal year 2026 to 12,467 crore rupees, according to the same report. Its comparable revenue was 11,573 crore rupees in fiscal year 2025, establishing the comparison base for the annual growth reported by Crisil. Across the sector, the agency forecast in its May 2026 report that Indian alcoholic beverage companies' revenue would grow 10–12% during the fiscal year then under way. Crisil attributed that expected growth to consumers shifting towards higher-priced products, the driver it identified for revenue expansion among companies operating in the market.
The disputed reductions stem from the trade agreement Britain and India signed on 24 July 2025, according to the timeline announced by the British government. Under the government's summary of the agreement, eligibility for preferential tariffs is linked to rules of origin covering goods wholly obtained in Britain or India. The conditions also cover goods substantially transformed through manufacturing in either country, according to the same summary. The examination described by Reuters' sources concerns the customs classification of bulk concentrates and inspectors' view on whether they qualify for the reduction set for whisky. The next step in the announced tariff schedule provides for a cut to 40% by the agreement's tenth year, following the initial reduction that began when it took effect in July 2026.
Alongside the customs scrutiny, Pernod is taking preparatory steps towards a potential initial public offering of its Indian business, according to its first-quarter fiscal year 2027 results announcement. The company described these steps in its latest results as preparations for a potential listing, with a decision to proceed remaining subject to board approval. The preparations come during the period in which the company announced Indian sales growth, while it continues to provide information requested by the Directorate of Revenue Intelligence. Board approval remains a condition for proceeding with the transaction outlined in the company's Indian business update. The agreement's customs timetable, meanwhile, extends to its tenth year under the government schedule, as the current dispute continues over imported concentrates' eligibility for the reductions.