India-UK Trade Deal Hits First Hurdle As 80-Plus Scotch Whisky Containers Held

More than 80 containers of bulk Scotch whisky imported by Pernod Ricard and Diageo are being held at Indian ports as customs investigators seek to impose a 150 per cent import duty, arguing that the shipments do not qualify for the reduced tariff under the India-UK Free Trade Agreement (FTA).

The dispute has emerged as the first major challenge to the implementation of the trade pact, which came into force on July 15, 2026. Under the agreement, India agreed to reduce import duties on eligible Scotch whisky from 150 per cent to 75 per cent immediately, with a further gradual reduction to 40 per cent over 10 years.

While the agreement provides tariff concessions for both bottled and bulk Scotch, the Finance Ministry's Directorate of Revenue Intelligence (DRI) maintains that the disputed bulk shipments are concentrates or compound preparations requiring further manufacturing and should attract the higher duty.

Why customs officials are seeking a 150 per cent tariff

The disagreement centres on how bulk Scotch whisky imported from the UK should be classified under India's customs tariff system. The industry maintains that Scotch remains whisky regardless of whether it arrives in retail bottles or large containers for subsequent bottling and other value-added operations. The DRI, however, is examining whether the disputed consignments should instead be treated as compound alcoholic preparations requiring further manufacturing.

Under the customs classification system, whisky falls under Chapter 22, Heading 2208, while Heading 2106 covers food preparations not elsewhere specified or included. The industry argues that qualifying bulk Scotch should be classified under the whisky-specific tariff heading rather than the alternative category being considered by investigators.

The relevant tariff schedule lists Scotch whisky under separate tariff lines for bulk imports and retail bottles: HS 22083092 for containers holding more than two litres and HS 22083012 for containers holding up to two litres. The UK Parliament's examination of the agreement confirms that the tariff reductions apply to both bottled and bulk Scotch exports, without a minimum import price threshold. However, the Scotch Whisky Association told the committee that HS 22089099, a separate tariff line used for the majority of bulk Scotch exports for regulatory reasons, was not liberalised to the same extent as the Scotch-specific codes. It warned that this could prevent a significant proportion of Scotch exports from benefiting from the agreed tariff reductions.

The DRI, however, has taken a different position. A November 4 memo issued by the agency, according to Reuters, said importers were "incorrectly" claiming benefits under the trade pact for bulk Scotch shipments. It argued that the consignments should be treated as "compound alcoholic preparations", attracting a 150 per cent import duty under a customs classification that has been in effect since May 1.

The memo said: "Preliminary investigation revealed that the imported goods are not finished whisky/brand/rum as such, but are concentrates/compound preparations which are subjected to further manufacturing."

It also warned that misclassification could have "large-scale, recurring substantial revenue implications" and instructed customs commissioners across India to ensure that the higher duty was applied.

Commerce Ministry assurance conflicts with DRI position

The customs position has created a disagreement between two government departments over the implementation of the trade agreement.

On November 2, Commerce Ministry officials assured liquor industry representatives that bulk Scotch imports were covered by the FTA's concessions and that the government would work towards resolving the dispute. The meeting was attended by Commerce Secretary Rajesh Agrawal and representatives of the International Spirits and Wines Association of India (ISWAI) and the Confederation of Indian Alcoholic Beverage Companies (CIABC).

"We are potentially moving towards a resolution. Bulk Scotch whisky imports are indeed part of concessions under the trade deal," a government source familiar with the discussions told Reuters.

Another source said Agrawal had outlined steps to address the concerns "so that the duty concession on bulk Scotch whisky is not impaired".

However, the November 4 DRI communication indicated that customs investigators were continuing to take a different position. A senior Finance Ministry source told Reuters that the Finance and Commerce ministries "are under discussion for an appropriate resolution of the matter".

Neither ministry nor the DRI responded to Reuters' requests for comment.

More than 80 containers held, supplies face potential disruption

The disagreement has already affected shipments at Indian ports, with Pernod Ricard and Diageo unwilling to pay the higher duty while the classification dispute remains unresolved.

According to industry sources cited by Reuters, Pernod Ricard and Diageo each have more than 40 containers of bulk Scotch awaiting clearance, taking their combined tally to over 80. Bacardi has another five containers on hold, according to a separate industry source.

Tax officials have also searched the offices of several liquor companies, including Pernod Ricard and Diageo, in recent weeks and questioned executives as part of the investigation.

The delays could affect supplies for companies that depend on bulk Scotch imports for their Indian operations. Around 80 per cent of Scotch whisky imported from Britain by volume arrives in bulk, according to Reuters.

These shipments are used for bottling and other value-added operations in India. Bulk Scotch is also used to produce Indian-made liquor brands, including IMFL, where it is blended in small quantities with other spirits and ingredients.

Dispute puts India-UK trade commitments under scrutiny

According to Reuters, Scotch whisky exports to India were valued at $335 million in 2024. The Scotch Whisky Association has projected that the trade agreement could increase exports by $1.34 billion over five years.

ISWAI has also raised concerns about the customs interpretation. In a communication to the government, the industry body warned that the dispute "risks undermining, in practice, an important market-access benefit negotiated and agreed between India and the United Kingdom".

A spokesperson for the UK government has said it is working with India to resolve the dispute and ensure that British businesses can export under the tariffs agreed in the trade pact. Scotland's First Minister John Swinney also raised the treatment of bulk Scotch imports with the Indian government during his October 20–27 visit.

With the Finance and Commerce ministries yet to reach a resolution, it remains unclear when the detained shipments will be cleared. The dispute has also raised questions over whether the tariff benefits negotiated under the India-UK agreement will reach the bulk shipments that account for most Scotch whisky imports from Britain.