Global spirits groups escalate legal battles in India
International drinks companies are mounting fresh challenges to regional tax policies, arguing they unfairly favour local producers. The latest dispute targets Maharashtra after earlier tensions in Telangana.
Hard on the heels of spirits giants such as Diageo and Pernod Ricard threatening not to supply the Telangana state liquor monopoly, the global spirits importers are suing a second Indian regional government.
The International Spirits and Wines Association of India, which represents them, is challenging Maharashtra state in court over a sharp tax hike on their affordable brands and for excluding the companies from a new lower tax category reserved for some local producers.
Maharashtra, where Mumbai is the largest centre, accounts for 7% of India’s premium liquor consumption and is where the likes of Diageo and Pernod have large production units.
New ‘Maharashtra Made Liquor’ category sparks dispute
In the summer the state government introduced a new tax regime to boost local investments by creating a category called “Maharashtra Made Liquor”. That, the ISWAI alleges, is discriminatory.
Distillers headquartered in the state but without any foreign investors behind them are now charged a booze tax of 270%.
But the duties were raised to 450% from 300% on rival brands in the affordable segment, which have a cost of production below 260 rupees (US$3) a litre.
That affects rival Indian-made brands such as Diageo’s McDowell’s, India’s largest-selling whisky, as well as Pernod Ricard’s Royal Stag, Tilaknagar Industries’ Imperial Blue and Allied Blenders and Distillers’ Officer’s.
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Sales plunge as duties rise
Anant S. Iyer, director general of the Confederation of Indian Alcoholic Beverage Companies, says sales of brands affected “have fallen 35% to 40% in recent weeks since the hike in excise duty”.
The ISWAI trade lobby group says the policy creates artificial trade barriers and wants it quashed or for companies with foreign investment to be permitted participation in the lower-tax system.
ISWAI’s lawsuit says “the state has sought to grant an artificial competitive advantage to the preferred class”.
Government defends policy as revenue booster
The Maharashtra government says the new tax regime will help in job creation, new investments, raise the operating capacity of existing factories and generate US$1.56 billion a year in additional revenues.
The first hearing of the case is due in a week’s time.
Tensions also rising in Telangana
Meanwhile, global alcohol groups such as Diageo, Heineken and Pernod Ricard are demanding US$337 million in overdue payments from sales to a state-run body in Telangana and are threatening to withhold supplies in retaliation.
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